Bloomberg News

Turkey’s Faster-Than-Expected 8.2% Growth Defies Basci: Economy

December 13, 2011

Dec. 12 (Bloomberg) -- Turkey’s economy expanded a faster- than-expected 8.2 percent in the third quarter, while the 12- month current-account deficit climbed to a record, defying central-bank attempts to engineer a slowdown and narrow the gap.

The current-account gap in October was $4.2 billion, taking the 12-month cumulative deficit to $78.6 billion, the central bank in Ankara said today. That’s about 10 percent of gross domestic product, which expanded for an eighth consecutive quarter in the three months to September. The pace of growth in the third quarter was exceeded only by China among the Group of 20 major economies.

Governor Erdem Basci said today that the economy is posed for a “soft landing” as monetary tightening in October takes effect. The bank is tracking inflation and may squeeze further by restricting open-market funding to banks, he said. The International Monetary Fund said in a Dec. 7 report that bank’s policies aren’t working and the economy now risks a sharp slowdown.

Recent data paint a mixed picture of the global economy. While a report on Dec. 9 showed German exports fell and India’s government said today that output shrank for the first time in more than two years, U.S. consumer confidence rose to a six- month high in December, according to the Thomson Reuters/University of Michigan preliminary index of consumer sentiment.

‘Growing Too Fast’

“The Turkish economy was growing too fast for its own good in the first three quarters and we’re going to have to see a major adjustment,” Inan Demir, chief economist for Finansbank AS, said in a telephone interview. “Given that we began the year with an agenda of reducing growth, our forecast of 8.3 percent for the full year is not a successful outcome.”

Yields on two-year benchmark bonds rose 9 basis points, or 0.09 percentage points, to 10.40 percent at the 5:30 p.m. close of trade in Istanbul. The main ISE National 100 share index fell 2.6 percent to 52,444.07. The currency declined 1.4 percent to 1.8677 per dollar.

The economy expanded 1.7 percent on a seasonally adjusted basis from the previous three months, the fastest rate this year, the statistics agency said. Annual growth adjusted for working days was 7.7 percent in the third quarter compared with 8.3 percent in the second.

China’s economy expanded 9.1 percent in the third quarter, while Germany, which is embroiled in Europe’s sovereign-debt crisis and is Turkey’s biggest trade partner, grew 2.6 percent.

‘Responses Were Insufficient’

“Policy responses were insufficient to prevent the development of a large current-account deficit and high inflation,” the IMF said in the report. “Monetary policy shifted to an unconventional mix of reserve requirements, the interest-rate corridor, and the policy rate, which has not demonstrated it can deliver price -- or financial -- stability.”

Now, the threat is that Europe’s sovereign-debt crisis will cut demand for Turkish exports and reduce the inflows needed to finance the current account, leading to a plunge in growth rates. Almost half of Turkey’s exports go to the European Union.

The economy is on course to meet the government’s target of 4 percent growth next year, Basci said in London today. Still, there are downside risks from the European debt crisis and the bank has the instruments to respond quickly to any shift in the outlook, he said after a meeting with economists.

“Consumer-loan growth rates right now are seen at and below 10 percent and overall loan growth is seen at below 20 percent,” Basci said. “If they remain at these levels, probably we will have less of a problem on the external side in the coming months. But if they are below that or above that, we are ready to tighten or ease monetary policy within a matter of days.”

European Leaders

A summit of European leaders in Brussels last week, which French President Nicolas Sarkozy called the last chance to rescue the euro from the two-year debt crisis, set a March deadline to flesh out new fiscal rules.

The current account is the broadest measure of international trade, encompassing goods, services and investment.

Goldman Sachs Group Inc. today forecast a technical recession -- two consecutive quarters of contraction -- for Turkey in late 2011 and early 2012. The economy is expected to expand 0.5 percent next year, Goldman said.

“We forecast a rebound in the second half of 2012, on the back of some relative normalization in the euro-zone,” Goldman economists including Ahmet Akarli in London said in an e-mailed report. “But the high base effects coming from 2011 mean that GDP growth on average will probably fall sharply in 2012.”

Further Steps

Basci took over the central bank in April and began using reserve requirements to slow bank lending to consumers. In October he added to those steps by doubling the rate at which banks borrow from the central bank to as high as 12.5 percent. He has kept the benchmark one-week repo rate at a historic low of 5.75 percent since he cut it in August, saying Europe’s debt problems threatened growth.

“There is very little convincing evidence that the central bank and government measures thus far are engineering much of a slowdown,” Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc. in London, said in an e-mailed comment. While the economy’s produces “Asia-style” growth rates, “the big difference is that in Turkey’s case a large weight is still being driven by dis-saving as reflected in the wide current-account deficit,” he said.

Growth slowed from 8.8 percent in the second quarter, the statistics office in Ankara said on its website today. It was forecast at 6.3 percent, according to the median estimate of nine analysts surveyed by Bloomberg.

“There’s got to be some slowdown, although so far the signs of it have been meager,” said Yarkin Cebeci, Istanbul- based economist for JPMorgan Chase & Co., said by phone. Forecasts of a recession, defined as two consecutive quarters of quarterly contraction, are “reasonable because the monetary tightening was real and global growth prospects are worsening.”

--With assistance from Jason Webb in London. Editors: Heather Langan, Ben Holland, Andrew J. Barden, Karl Maier

To contact the reporters on this story: Steve Bryant in Ankara at; Mark Bentley in Istanbul at

To contact the editor responsible for this story: Andrew J. Barden at

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