Turk growth forecast at 8.1 pct
LONDON – Turkey is well on track for beating this year’s 5 percent growth targets and should be able to negotiate another three-year loan deal with the International Monetary Fund, a Reuters poll showed. All the 23 analysts in the Sept. 7-10 survey said the Turkish government would seek and secure a new loan deal with the IMF to replace the current $19 billion accord which expires in February. «The government’s recent comments regarding its intention to seal a deal with the IMF and the external financing requirement at hand strongly suggest a new standby arrangement with a new loan,» said Tevfik Aksoy at Deutsche Bank in Istanbul. The median forecasts showed the new deal lasting three years and featuring an initial primary surplus target of 6.0 percent of gross national production (GNP) – a fraction below the current 6.5 percent requirement. The stringent fiscal regime imposed as part of the current IMF deal has helped shore up the Turkish economy after a deep recession, but there have been calls for the rules to be relaxed as they leave little spare cash for public investment. «As the economy grows and government revenues increase, there are pressing social programs to fund, while the ability to service debt will improve,» said Roger Monson at CA-IB International Markets in London. «So a mild easing in the primary surplus target is still prudent.» Asked for their own view on what primary surplus target would be optimal for Turkey, strategists also gave a median forecast of 6.0 percent. An IMF team is expected to arrive in Turkey next week to review the existing program and probably start discussion on a follow-up deal. Growth, inflation to slow The median forecast showed Turkey’s GNP growing by 8.1 percent this year – comfortably above the 5 percent target – before slowing to 5.0 percent in 2005. Most economists revised up their 2004 view after second-quarter data yesterday showed stronger-than-expected 14.4 percent annual GNP growth. But growth is expected to slow in the second half of the year. «Turkey can easily exceed the growth target of 5 percent in 2004. However, I expect growth performance to slow in 2005, mainly due to tight fiscal and monetary policies,» said Hakan Aklar at Ak Investment in Istanbul. Turkey’s central bank cut its key overnight borrowing rate by two percentage points to 20 percent on Wednesday, saying economic stability was helping curb inflationary pressures. Economists expected Turkey to meet the target of reining in its inflation from 18.4 percent in 2003 to 12 percent this year. Forecasts for end-year consumer price inflation ranged from 8.9 percent to 12.0 percent, with a median of 10.8 percent. Inflation was expected to slow further in 2005, with a median forecast of 9.4 percent. But Turkey’s large current account deficit remains a worry. In August, Turkey raised its target for this year’s gap to $10.8 billion from $7.6 billion, but most analysts in the poll said the final number would be higher still. The median showed a deficit of $13.0 billion at the end of this year, though only three respondents said the gap would present balance of payment problems. «I think this year it will be a manageable deficit. For next year, if I am right and there is some kind of a slowdown in domestic demand, things will remain manageable. But if they continue to grow at a serious speed, I foresee difficulties,» said Mehmet Simsek at Merrill Lynch in London. Forecasts for the size of this year’s deficit ranged quite widely, from $10.0 to $13.9 billion. Weaker lira The Turkish lira was expected to gradually lose some ground against the dollar over the next 12 months, hurt by worries over the current account gap and by rate cuts. Strategists said that a new IMF deal would help limit lira weakness, as would being given a date for the start of accession talks with the European Union. The lira hit its highest level in almost two years of 1.2900 million lira per dollar in February, but has since weakened and yesterday was trading at around 1.4890 million per dollar. Turkey plans to redenominate its currency in January, by chopping off six zeros. The median forecasts in the survey showed the redenominated lira at 1.5550 per dollar at the end of February and 1.5825 at the end of August. Reinhard Cluse at UBS in London said the redenomination could help curb inflation and therefore support the lira in the longer term. «With the denomination of the lira being very high, it’s very hard for consumers to notice relative price changes, they are blurred in these huge figures,» he said. «However once you redenominate the currency, it becomes somewhat easier for the consumer to detect these changes.»
