3-4 percent growth not enough for Turkey, says finance minister

ANKARA - Reuters

Finance Minister Mehmet Şimşek (C) speaks during a press conference in Ankara. AA Photo

Turkey must reform its economy to get back to high growth, Finance Minister Mehmet Şimşek said on Oct. 15, after data showed unemployment hitting a four-year high and the current account deficit widening.

“Turkey cannot be satisfied with current annual growth of 3-4 percent, we need to get back on the high growth path. Extensive micro reforms are needed for this,” Şimşek told a news conference in Ankara, adding that Prime Minister Ahmet Davutoğlu would announce a number of reform plans soon.

The government this month cut its growth forecasts to 3.3 percent from 4 percent for 2014 and to 4 percent from 5 percent for next year.

Energy-dependent Turkey’s main economic weakness is its current account deficit, which leaves it reliant on foreign fund flows.

Data yesterday showed the deficit rose to $2.77 billion in August from $2.65 billion in July, although one economist played down the problem.

“We consider the expansion of the current account deficit in August as a one-off event, and expect the rebalancing trend of the external accounts to continue in the upcoming months,” said Deniz Çicek, economist at Finansbank.

Other data showed the unemployment rate rose to 9.8 percent in the three months from June to August, its highest level since October 2010. It was 9.1 percent in the May-July period.
The budget, meanwhile, showed a deficit of 9.2 billion lira ($4 billion) in September.

Turkey slashed its growth estimates and raised its inflation forecast for 2014 and 2015 at the beginning of October, citing unfavorable conditions in the global economy.

Turkish government officials then warned that tensions in Iraq and Syria, as well as Ukraine, combined with slower growth in Europe could hit the economy, putting pressure on the central bank to cut rates and support growth.

Fighting inflation will continue to be the fundamental priority of Turkey’s economic plan in 2015 to 2017, the government said, along with boosting growth and reducing the current account deficit.

Finance Minister Şimşek said fiscal tightening would continue, especially to help the Central Bank in fighting against high inflation rates.

“We also need to increase public saving levels to reduce the current account gap ... We need a healthy financial space for sustainable growth. As long as we tighten our budget, we will become stronger against any economic shock,” he noted.