Bloomberg News

Turkish Economy Unexpectedly Grows, May Halt Rate Easing

September 12, 2011

(Updates with closing market prices in fifth paragraph.)

Sept. 12 (Bloomberg) -- Turkey’s economy unexpectedly expanded in the second quarter from the previous three months, weakening the case for further rate cuts by the central bank.

The economy expanded 1.3 percent on a seasonally adjusted basis from the first quarter, the statistics agency in Ankara said today. Output was expected to be unchanged, according to the median estimate of six economists in a Bloomberg survey. Annual growth was 8.8 percent, higher than the 6.3 percent median forecast.

Central bank Governor Erdem Basci surprised markets by cutting the benchmark interest rate to a record low of 5.75 percent last month, betting that the need to protect the economy from the risk of recession in Europe, Turkey’s main trade partner, outweighs the threat of a record current account gap run up during the boom.

“The Turkish economy is still growing at a robust pace, with vulnerabilities remaining on the external financing side, and with fiscal policy hardy proving supportive to the central bank in terms of demand management,” Tim Ash, chief economist for emerging markets at Royal Bank of Scotland Plc in London, said in an e-mailed report to clients today. There is now “overwhelming evidence” that the central bank shouldn’t cut rates further in the short term, he said.

The lira gained 0.1 percent to 1.7896 per dollar at 6:12 p.m., cutting this year’s decline of 14 percent, the most among major emerging market currencies. The benchmark stock index pared earlier declines after the data, falling 0.5 percent. Yields on two-year benchmark debt added 1 basis point to 7.93 percent after rising as much as 9 basis points earlier.

Current Account

The statistics agency also revised first-quarter growth to 1.7 percent from 1.4 percent, and annual growth in the same period to 11.7 percent from 11 percent.

Turkey’s current account deficit widened to $5.3 billion in July from $3.6 billion a year earlier, the central bank said today, taking the 12-month gap to a record $74.6 billion, or about 9.5 percent of economic output.

Basci said last month he expects a “very rapid” improvement in the current account balance in the second half of the year.

Ahmet Akarli, an economist at Goldman Sachs & Co. in London, said the figures published today show signs that the economy is shifting away from dependence on domestic demand, with exports contributing more.

‘Sustained Lira Weakness’

“The slowdown/rebalancing process will likely accelerate in the coming quarters, thanks to tighter domestic lending conditions, increased global uncertainty and sustained lira weakness,” he said in an e-mailed report to clients today.

The higher-than-expected growth data prompted JPMorgan Chase & Co. to increase its economic growth forecast for this year to an annual 6.3 percent from 5.6 percent. Still, economist Yarkin Cebeci said data since the end of the second quarter show a “significant slowdown.”

HSBC’s Purchasing Managers’ Index fell to 48.8 last month, the lowest since April 2009, from 52.3 in July. A figure below 50 indicates a contraction. Consumer confidence slid to 90.4 in the CNBC-e monthly index for August, from 100.4 in July.

--With assistance from Ercan Ersoy in Istanbul. Editors: Ben Holland, Mark Bentley

To contact the reporter on this story: Ali Berat Meric in Ankara at americ@bloomberg.net; Emre Peker in Istanbul at epeker2@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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