Local poll result may affect growth outlook, says Turkish finance minister

BATMAN - Reuters

Turkish Finance Minister Mehmet Şimşek says the March 30 elections in the country are crucial to decide level of risks to political stability. REUTERS photo

Turkey could see risks to its growth forecasts this year if local election results fail to produce a decisive win for the ruling party, Finance Minister Mehmet Şimşek said in an interview.

The government could lower its 4 percent growth target for 2014 if the ruling Justice and Development Party (AKP) failed to get 40 percent of the vote in the nationwide local elections on Sunday, he said, roughly the level it saw at the last local elections in 2009. The local election is the first big test of Prime Minister Tayyip Erdoğan and the ruling AK Party’s popularity since protests last summer and a corruption scandal that erupted in mid-December.

It is widely seen as a referendum on Erdoğan’s rule, and the outcome may dictate whether he runs for the presidency in an August election or stays on for a fourth term as prime minister.

“If the result of next weekend is that political stability is not under threat, that is if there is support of more than 40 percent [for the AKP], then the uncertainty related to the presidential election will be limited,” Finance Minister Mehmet Şimşek told Reuters in an interview in the southeastern city of Batman.

“If a perception emerges from the elections that there is a threat to stability, the downward risks to growth will increase and there could be a revision” to the government’s 4 percent economic growth target this year, he said.

‘Growth to be 4 pct’

But he added that Turkey’s economy was “less fragile than it appeared from abroad.”

The corruption scandal which began with the arrest of three ministers’ sons and businessmen close to Erdoğan has undermined confidence in the outlook for growth, helping send the lira to record lows and triggering a huge hike in interest rates in January to defend the currency.

Turkey’s consumer confidence index tumbled to a four-year low in February. But industrial production appears to have held up, with output rising 7.3 percent year-on-year in January.

Data yesterday showed the number of foreign visitors to Turkey rose 6.6 percent in February, in a boost for its tourism industry, a crucial source of foreign currency.

Şimşek said he expected economic growth last year, which is due to be announced on March 31, to be around 4 percent.

He also said there is currently no need to revise the government’s budget targets, adding that he expected budget improvements to continue. The central government budget deficit-to-gross domestic product ratio seen at 1.9 percent this year, the minister said.

Financial markets were steady yesterday, with the lira broadly flat at 2.2360 against the dollar and the main share index 0.43 percent higher. The 10-year benchmark bond yield fell to 11.29 percent from 11.36 percent.