Growth declines sharply

Bloomberg

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Turkey’s economy grew at the slowest annual pace in six years in the third quarter as waning demand from Europe for exports and higher domestic interest rates cut industrial production.

Expansion eased to 0.5 percent from a revised 2.3 percent in the previous quarter, Ankara-based Turkish Statistical Institute said on its Web site yesterday. Gross domestic product, or GDP, was expected to expand 1.1 percent, according to the median estimate of eight economists surveyed by Bloomberg.

The pace of growth in Turkey is dropping along with other emerging markets as the global credit crunch undermines demand for exports and curbs the inflow of foreign capital. The slowdown has prompted the government to seek financial support from the International Monetary Fund, or IMF, and may push the Central Bank to cut interest rates for the second time in two months this week.

The slowdown "makes a mockery of official projections for 4 percent real GDP growth in 2009," Tim Ash, an economist at Royal Bank of Scotland in London, wrote in a note to investors. It "adds weight to calls for the government to quickly sign up to a new funding arrangement with the IMF."

The Turkish lira, or YTL, fell 0.5 percent to 1.5656 to the dollar at 3:10 p.m. in Istanbul. Yields on benchmark debt tracked by ABN Amro added 4 basis points, or 0.04 percentage point, to 18.44 percent.

Rising unemployment
Manufacturing output shrank 1.1 percent in the third quarter, TÜİK said. Construction declined 4.3 percent and farming output rose 2.2 percent. Economic growth for the first nine months of the year was 3 percent, it said. Unemployment also rose to 10.3 percent in the three months to October, the statistics office said yesterday. The jobless rate was 9.8 percent in the month-earlier period.

Turkey has been negotiating a possible financial support package with the IMF since May, when a $10-billion accord expired. The fund has demanded "significant" adjustments to the government’s spending plans, Economy Minister Mehmet Şimşek said on Nov. 27. The 2009 budget sees tax revenue rising 16 percent as the economy expands 4 percent.

Turkey is already in a recession because the economy shrank 1.4 percent in the second quarter and 1.1 percent in the third when the figures are seasonally adjusted, Ahmet Akarlı, an economist at Goldman Sachs in London, said in a note to investors. The statistics office does not provide seasonally adjusted data. Industrial output fell 8.5 percent in October, the most since 2001, indicating that growth may slow further in the fourth quarter.

The economy may contract in the next three quarters before recovering in the third quarter of next year, Yarkın Cebeci, an economist at JPMorgan Chase & Co., said in an e-mailed note.

Toyota Motor Corp. said in September it was suspending production at its Turkey plant for two weeks because of lower demand in Western Europe. On Sept. 23, Tofaş Türk, which makes Fiat cars, announced a six-day pause.

Earlier than expected
"The slowdown in Turkey has occurred much earlier than thought," said Erkin Işık, an economist at Fortis Bank in Istanbul. "We’re likely to see more deterioration in the first half of 2009."

Domestic demand has also declined, in part because the central bank held its benchmark interest rate at 16.75 percent throughout the quarter after raising it three times earlier in the year. The bank cut the rate to 16.25 percent in November and today’s figure will add to the case for an additional reduction when the rate-setting committee meets in Ankara on Dec. 18.