* Economy contracts 3.0 pct in Q4; seen by many as recession
* Slump follows last year's lira slide, rift with U.S.
* Worst showing since 2009 for this major emerging market (Adds election context, graphic)By Daren Butler and Ezgi ErkoyunISTANBUL, March 11 (Reuters) - Turkey's economy contracted asharper than expected 3.0 percent in the fourth quarter of 2018,its worst performance in nearly a decade and a clear sign thatlast year's lira crisis has tipped it into recession.The drop in year-on-year GDP, underscored by expectations ofmore shrinkage through to mid-2019, represents a big step backfor an emerging market long viewed as a star performer - and apotential stumbling block for President Tayyip Erdogan.Turkey achieved growth of more than 7 percent in 2017 afteryears of a construction-fuelled boom driven by cheap foreigncapital.But last year, the economy was battered by a 30 percentslide in the value of the lira brought on by concerns over adiplomatic row with Washington and the independence of thecentral bank.The year-on-year GDP drop in the fourth quarter comparedwith a median forecast of 2.7 percent in a Reuters poll, and itwas the worst performance since the second quarter of 2009. Thelira initially eased slightly before recovering to5.4386 against the dollar.
The economy grew 2.6 percent as a whole in 2018, a bitstronger than the poll forecast but also the weakest showingsince 2009, the Turkish Statistical Institute data showed. Fourth quarter GDP fell a seasonally and calendar-adjusted2.4 percent from the previous quarter, when it shrank 1.6percent.For many, that meant Turkey entered a technical recession,often defined as consecutive drops in quarter-over-quartergrowth.
The slowing momentum "is just a warning signal that theTurkish economy is going down a cliff," said Nora Neuteboom,Netherlands-based economist at ABN Amro.
The economy's abrupt slowdown in the second half of lastyear was in large part driven by a rift with Washington that ledto U.S. tariffs and sanctions, and public pressure from Erdoganto cut borrowing costs that amplified investors' worries overthe central bank's independence.As the lira crisis grew the bank raised its key interestrate to 24 percent in September, putting a brake on financialactivity, and inflation peaked at a 15-year high of more than 25percent in October."DEEPER AND LONGER" RECESSIONErdogan is campaigning ahead of local elections on March 31for mayors and municipal boards, and a deteriorating economy iseroding support for his AK Party, polls show. "My sense is the recession will be deeper and longer thanpreviously (thought) given the balance-sheet nature of (it),"said Timothy Ash of BlueBay Asset Management. "Any unorthodoxresponse (by authorities, such as) early monetary policyeasing... will make things much worse."
The construction sector - long a beneficiary of Turkey'scredit-fuelled building boom - contracted 8.7 percentyear-on-year in the fourth quarter, the data showed, coupledwith a 6.4 percent shrinkage of the industrial sector.
Consumption expenditure of households decreased by around 9percent, pointing to a slowdown in domestic demand that has alsosharply narrowed Turkey's current account deficit. The economy's growth rate in the third quarter was raised to1.8 percent from a previously reported 1.6 percent.
A senior Turkish economy official said this year-over-yearmeasure was the "prominent method used" in Turkey in determiningwhen a recession begins, suggesting no official acknowledgementwould be made until after first quarter GDP data is released.
The Reuters poll of 19 economists expected the contractionto continue through the second quarter of 2019. The government,which in September cut its 2018 growth forecast to 3.8 percentfrom 5.5 percent, said improvement was around the corner."The worst is behind (us)... The worst forecasts were notrealised," Finance Minister Berat Albayrak said on Twitter afterthe data was published. He predicted 2019 growth in line withthe government's forecast of 2.3 percent.The Turkish government has attempted to boost domesticdemand with tax cuts for some consumer products includingvehicles and furniture, and has encouraged shops to offerdiscounts of at least 10 percent.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Turkish quarterly GDP performance ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Daren Butler and Ezi Erkoyun;Additional reporting by Behiye Selin Taner in Istanbul andNevzat Devranoglu in Ankara;
Editing by Jonathan Spicer and John Stonestreet)