Turkey's economy, which expanded by an average of more than 7 percent between 2002 and 2007, may have contracted by as much as 10 percent in the first quarter of this year, as the global recession sapped foreign demand for Turkish goods and led to record unemployment.



The International Monetary Fund, or IMF, has said Turkey's economy will probably decline by 5.1 percent this year.



The government may introduce new tax cuts to stimulate the economy and will announce in the coming days whether to extend previously introduced reductions after assessing their effectiveness, Babacan also told NTV television in an interview broadcast live.



He did not specify which sectors may get a break. Turkey suspended special consumption taxes for three months on cars, white goods, electronics and large houses on March 15.



Automotive companies have repeatedly urged the government to extend the breaks to encourage domestic consumption after their exports plunged in the global recession.



Babacan also said he would meet IMF Deputy Managing Director John Lipsky this month to discuss a new lending pact.



Turkey's year-long negotiations with the international lender have failed to produce an agreement, and Prime Minister Tayyip Erdogan has said Turkey would not concede on certain points, like spending, and can do without the funding if necessary.



Babacan said that the government's budget would produce a deficit before interest payments for the first time in years, amid rising government spending and declining tax revenue.



Investors and economists say an IMF deal, which could be worth as much as $45 billion, would help the government and private-sector roll over debt payments coming due later this year after international credit markets dried up.



Industrial production, which has fallen for nine consecutive months, picked up last month, Babacan also said. Government data on Monday showed output fell 18.5 percent in April, more than expected.



The current account deficit will fall to less than $10 billion this year from $41.42 billion in 2008, Babacan also said, as the slowing domestic economy saps demand.



Turkish financial markets traded lower on Monday, tracking global markets. The lira currency weakened to 1.5575 against the dollar compared with 1.535 on Friday.