Turkish growth beats forecast, political turmoil clouds outlook

ISTANBUL-Reuters

Turkish Deputy Prime Minister Ali Babacan, speaks during a news conference, after the group photo of finance ministers and central bank governors of the Group of Twenty nations, Friday, April 17, 2015, at the International Monetary Fund and World Bank meetings in Washington. AP Photo

Turkey’s economy grew a larger-than-expected 2.3 percent year-on-year in the first quarter, data showed on June 10, but analysts saw an uncertain outlook after a weekend election that left the country facing the prospect of a coalition government.

The growth rate clearly exceeded a Reuters poll forecast of 1.6 percent, triggering moderate gains in shares and the lira, which has fallen 15 percent against the dollar this year.

Annual growth was still down from 2.6 percent in the fourth quarter, well below the government’s targets, and analysts played down the positive significance of the data.

“This stronger outturn was caused by a sharp pick-up in consumer spending, which came at the cost of a lower domestic savings rate and a wider current account deficit,” said Capital Economics senior emerging markets economist William Jackson.

“None of this looks sustainable and we think growth will be weak over the coming quarters,” he said in a note.

But Finance Minister Mehmet Şimşek said the growth was positive given stagnation in Europe, geopolitical tensions, financial volatility and political uncertainty.

“Leading indicators show growth has accelerated in the second quarter. The Turkish economy’s fundamentals are sound. Political uncertainty should not last long,” he wrote on Twitter.

Deputy Prime Minister Ali Babacan said he expected external demand to contribute to growth.

The ruling Justice and Development Party (AKP) lost its parliamentary majority in Sunday’s vote, ending more than a decade of single-party rule and plunging Turkey into uncertainty not seen since the 1990s. The prospect of a coalition fuelled uncertainty about the make-up of the next economic team.

Output grew 1.3 percent from the previous quarter on a seasonal and calendar-adjusted basis, the Turkish Statistics Institute (TÜİK) said. Gross domestic product (GDP) expanded 2.9 percent last year.

Below targets

The growth was still well below the levels sought by the ruling AKP, which has had a solid record on the economy since first coming to power in 2002.

According to the Reuters poll, the economy is forecast to grow 3.05 percent this year as a whole, below a target of 4 percent in the government’s medium-term program.

The lira was at 2.7370 to the dollar, firming from 2.757 late on June 9. The benchmark 10-year bond yield fell to 9.54 from 9.72 percent on Tuesday.

Household consumption rose 4.5 percent year-on-year in the first quarter, offsetting a slight decline in exports, reflecting factors including the recession in Russia and bad weather, Jackson said, forecasting full-year growth of 2.5 percent.

Recent data has painted a mixed picture on the economy. Industrial production grew a better-than-expected 3.8 percent in April but trade ministry data on June 9 showed exports tumbling 18 percent and imports dropping 14 percent in May.