Bloomberg News

Turkey Third-Quarter GDP Slows to Lowest Level Since 2009

December 10, 2012

Turkey’s economic growth eased to the slowest pace since 2009 in the third quarter, challenging the government’s year-end growth target and reinforcing expectations that the central bank will cut interest rates.

Gross domestic product, the value of all goods and services produced, advanced 1.6 percent on an annual basis after climbing a revised 3 percent in the second quarter and a revised 3.4 percent in the first. The third-quarter expansion was less than the median estimate of 2.5 percent by 10 economists in a Bloomberg survey.

Second-quarter growth was revised from 2.9 percent, the state statistics office in Ankara said on its website today. Turkey expanded 8.5 percent last year, the third-fastest-growing Group of 20 economy behind China and Argentina. The government forecasts full-year growth of 3.2 percent.

Turkish policy makers are trying to engineer a soft landing as the European Union, its largest trading partner, is expected to contract 0.5 percent in 2012, according to the European Central Bank. Turkish bank lending last year helped fuel a current-account deficit that reached 10 percent of GDP and drove the currency down more than 15 percent.

Central bank Governor Erdem Basci tightened monetary policy in October in an attempt to cool the economy and rein in bank lending. He introduced a dual interest-rate policy that allows him to vary rates on a daily basis between a benchmark rate of 5.75 percent and a higher rate of 9 percent. The corridor gives the bank the flexibility to manage the goals of bolstering growth, bringing down inflation and stabilizing the currency.

Successful Landing

The central bank implemented a “successful soft landing,” Inanc Sozer, an economist at Odea bank, said in an e-mailed statement before the figures were released. “This is the first time both domestic and external demand is expected to grow thanks to rebalancing in the economy on the back of the central bank’s incentives and policies.”

The Turkish economy will expand 3 percent in 2012, according to the median estimate of 24 economists in a Bloomberg survey. Morgan Stanley predicts Turkey will be the fastest- growing economy in the central eastern Europe, Middle East and Africa region in 2013, with 4 percent expansion.

Inflation eased to 6.4 percent in November, the lowest level in 14 months. This prompted Morgan Stanley to cut its end-2012 inflation forecast to 6.3 percent.

Policy Easing

“We now expect the year-on-year rate to ease to sub-6 percent in the second quarter of 2013,” Morgan Stanley Research said in a Dec. 7 note. “We now expect easing in both the policy and the lower end of the overnight interest rate corridor to take place as early as December, and we have penciled in further cuts in the first quarter 2013.”

The central bank has dropped the top end of its interest- rate corridor by 250 basis points since September to 9 percent and kept bank borrowing costs near the bottom of the range in recent weeks, without reducing the 5.75 percent benchmark. Its overnight borrowing rate, the bottom of the corridor, is 5 percent.

“We think the central bank rightfully considers itself successful in managing a fairly complex situation,” Tevfik Aksoy, chief economist for the CEEMEA region at Morgan Stanley, said in a separate note.

Turkey’s economy grew 0.2 percent on a quarterly basis, according to seasonally and working day-adjusted figures released today. That compared with a revised 0.1 percent quarter-on-quarter contraction in the first quarter of 2012.

To contact the reporter on this story: David Neylan in Ankara at dneylan1@bloomberg.net

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


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