Istanbul’s Haydarpasa port. The finance minister said a liquidity shortage in the swaps market used to stabilise the lira before last month’s elections wasn’t orchestrated by the government. Image Credit: Reuters

(Bloomberg) — The Middle East’s largest economy probably broke free of its first recession in a decade, according to Turkish Treasury and Finance Minister Berat Al Bayrak.

Turkey may already be on course to recovery after ending last year with two consecutive quarters of contraction following a currency crash, Al Bayrak said Monday, citing preliminary data through the first three months of 2019. He spoke after the government released statistics showing joblessness soaring, underscoring the economic challenges Turkey still faces.

Contradicting widespread assumptions by investors, Al Bayrak said a liquidity shortage in the swaps market used to stabilise Turkey’s currency before last month’s elections wasn’t orchestrated by the government, which acted in line with “free-market rules.” Al Bayrak said Turkey wants to capitalise on an election-free period of more than four years following the March 31 municipal vote so economic policymakers can act without political pressure.

“We’ve come out of a difficult period with a minimum amount of damage,” Al Bayrak said. “We’ll take whatever steps necessary to meet our targets because there are no elections ahead of us. We will take those steps with great ease.”

In an attempt to rev up the economy, the minister recently unveiled a plan to bolster the nation’s banking sector that’s saddled with souring debt and reeling from years of currency depreciation. The program met with scepticism by some investors who questioned if it’s sufficient following a meeting with the minister in Washington last week.

Al Bayrak said he also discussed steel tariffs and the US probe of Turkey’s state-run lender Halkbank with American officials, without elaborating. A senior Halbank executive was convicted in a New York court last year of participating in a scheme to evade US sanctions on Iran. Investors have been bracing for a fine on the bank from the Treasury.

Divergent Views

A key test for the finance chief will be to meet his self-imposed growth target of 2.3 per cent in 2019, which remains sharply at odds with forecasts for a continued contraction by most economists. The International Monetary Fund just reversed its call for a slight gain in gross domestic product and now expects a decline of 2.5 per cent this year.

The green shoots in Turkey’s economy are few and far between. The ranks of the unemployed swelled by 366,000 people in one month, pushing the jobless rate in January to the highest level in a decade. Still, industrial production in February fell less than forecast in the smallest contraction since September.

“A number of stimulus measures announced by the government in recent months for both households and companies will be helpful for the economic recovery, though downside risks remain due to global and geopolitical uncertainties,” Muhammet Mercan, chief economist for ING Bank AS, wrote in a report.

But a continued weakness of domestic demand is weighing on Turkey’s growth prospects following last year’s depreciation of 28 per cent in the currency. It showed signs of stress again before the March elections and has remained unsteady following a liquidity crunch in an offshore swap market frequently used by foreign banks trading in liras.