Turkish economy grows fast
ISTANBUL – Turkey’s economy grew more than expected in the second quarter, official data showed yesterday, but economists said growth would probably slow in the second half due to monetary tightening. Gross national product (GNP) grew 8.5 percent year-on-year in the second quarter at constant prices, exceeding a poll forecast of 7.7 percent, as a result of strong domestic demand. Deputy Prime Minister Abdullatif Sener said growth in 2006 as a whole was likely to be near 6 percent, compared with an official government target of 5 percent, but he said revising economic program targets was «out of the question.» In 2005, GNP grew 7.6 percent. The Turkish economy has rebounded strongly since a financial crisis in 2001 triggered a deep recession. Multibillion-dollar loan accords with the International Monetary Fund (IMF) have helped slash inflation and get the economy back on track. The Turkish Statistics Institute said gross domestic product (GDP) grew 7.5 percent in the second quarter, compared with a Reuters poll median prediction of 7.55 percent. Economists predicted a slowdown in the second half. «A significant slowdown is expected as the market volatility and the rise in interest rates should hit the consumption and investments on one hand, and the extra fiscal tightening vowed to the IMF should put a tap on public demand on the other,» said economist Yarkin Cebeci at JP Morgan. The lira lost as much as 25 percent of its value against the dollar in May and June, undermining consumer confidence and prompting the central bank to raise borrowing rates 425 basis points (4.25 percent) and lending rates 625 points. The lira touched a five-week low against the dollar yesterday as the greenback surged in international markets amid expectations of further US rate hikes. Istanbul’s main share index was off 1 percent at 36,999.63 points. Private consumption strong Some economists said however that monetary tightening in Turkey, which is negotiating European Union membership, would have limited impact and Sener predicted that the official 5 percent growth target would be beaten. «It can be said that growth will likely exceed the 5 percent target and reach 6 percent in 2006,» he told a news conference following the release of the growth data. He also said Turkey expected foreign direct investment (FDI) of between $17 billion and $20 billion in 2006 and that consumer price inflation was expected to be in single digits this year. FDI has risen sharply on the back of EU accession talks, international companies’ search for new growth markets and political stability in Turkey. Analyst Simon Quijano-Evans from CAIB/Bank Austria said there was clear potential for at least 5.5 percent growth. «The figures should be a clear wake-up call for the central bank too. It has been talking about more subdued growth in the second half on lag effects from the 425-basis point increase in interest rates, as well as the lira turbulence,» he said. Under the ruling center-right Justice and Development Party (AKP), Turkey has posted strong annual growth averaging nearly 8 percent over the past few years. Inflation also fell into single-digit figures for the first time in a generation, though the recent turmoil on the financial markets has pushed it back into double digits. Sener forecast CPI to be back in single digits for 2006. Successful auction Yesterday, Turkey’s Treasury sold a net 2.513 billion lira ($1.7 billion) of a six-month reference bill yesterday at an average yield of 21.81 percent, central bank data showed, with bids higher than expected. The volume was in line with the Treasury’s target, while the average yield was slightly below a poll forecast of 21.91 percent. Bids sharply exceeded expectations, amounting to 9.1 billion lira, prompting a firming of the lira to 1.4820 against the dollar on the interbank market. The Turkish currency had weakened to a five-week low of 1.4900 against the greenback during the morning in line with international dollar strength. The maximum yield in the auction was 22.09 percent and the Treasury met some 30 percent of bids, which had been expected to be around four billion lira. The bill matures on March 14, 2007. Dealers said the high level of bids encouraged expectations for high demand at two auctions today. The Treasury is facing heavy redemptions this week and today it will auction a five-year floating rate note (FRN) and 672-day discount bond. At the end of August, the Treasury said it planned to borrow 10.7 billion lira ($7.3 billion) from the domestic market in September against redemptions of 15.4 billion lira. It has scheduled five auctions for the month as a whole.
