Russian crisis to have ‘limited’ impact on Turkey’s trade

ANKARA - Reuters

Turkish Deputy Prime Minister Mehmet Şimşek poses during an interview with Reuters in Ankara, Turkey, December 23, 2015. REUTERS Photo

Turkish Deputy Prime Minister Mehmet Şimşek said souring relations with Moscow after Turkey shot down a Russian warplane last month had not had a serious impact on trade and was unlikely to do so.

“We do not anticipate a lasting, significant impact on foreign trade. If there is one, it will be limited,” he told Reuters in an interview.

“We will be able to find alternative markets for our products,” he added. 

Şimşek said he expected faster economic growth this year than official forecasts, and even stronger expansion next year. 

He also noted Turkey’s Central Bank had been “very clear” in its statement explaining its surprise decision to leave interest rates steady this week, in comments that may do little to quell investors’ concerns about the bank’s independence.

The “positive surprise” of third-quarter GDP growth of 4 percent pointed to full-year growth of 3.5 to 4 percent and more than 4 percent growth in 2016, said Şimşek, who is responsible for the performance of the economy.

In October, the government cut its growth forecasts to 3 from 4 percent in 2015 and to 4 from 5 percent in 2016.

“This growth is a rather good outcome given the serious political instability due to elections, troubles in the Middle East and surrounding countries and the narrowing demand due to the collapse in commodity prices,” he said late Dec. 23.

Şimşek, a former finance minister, took up his new post last month after an election that handed one-party rule back to the Justice and Development Party (AKP), which oversaw an economy that has grown around 5 percent annually on average since it first came to power in 2002.

The deputy prime minister also said he expected the current account deficit, resource-poor Turkey’s biggest economic weakness, to narrow to about 4.5 percent of GDP this year and then to 4 percent next year.

“We think the narrowing in the current account deficit will continue next year despite developments in Russia and the region,” he said.

Bank ‘on track’

Şimşek said the Central Bank, which stunned the markets on Dec. 22 by not hiking interest rates as widely expected, was acting in line with its “road map” towards a simpler policy framework aimed at narrowing its corridor of interest rates.

“[The Central Bank] has taken many steps required by this road map and said that the next step would be a process of narrowing the corridor. It linked this to market volatility,” he said, avoiding further comment.

“In the short term, naturally, inflationary pressures will continue to be strong… The decline in global commodity prices will be somewhat supportive in the period ahead,” he noted, suggesting the inflationary pressure the Central Bank has faced may ease.

“To lower [inflation] we have to raise productivity, securing this with structural reforms. We must strengthen monetary policy’s hand by keeping fiscal policy tight,” he said.

He added that the 2016 budget would give the signal that fiscal discipline will be maintained and forecast faster growth next year as political uncertainty wanes and European economies recover.

“The reform agenda, serious real increases in wages, domestic investment and consumption will boost demand,” he said.

He added that a delay in Turkey’s implementation of the Basel III set of global banking regulations, expected to take place in March, was not currently on the agenda.