ISTANBUL (Reuters) – Turkey’s first-quarter GNP beat forecasts with a 6.7 percent annual rise, data showed yesterday, as state spending ahead of a general election was higher than expected and far outpaced still-weak consumer spending. Economists said that while private spending data showed last year’s 4.25 percentage point interest rate hike was working, high state spending provided the central bank with another reason to stay hawkish. The figures also provide good news for the ruling center-right Justice and Development Party (AKP) as it faces a general election on July 22. The Turkish Statistics Institute said first-quarter gross domestic product rose an annual 6.8 percent, beating a poll forecast of 5.75 percent. GNP had been seen up 5.10 percent. External demand was a major factor as exports of goods and services rose 14 percent. But economists said the main surprise came from the public sector as state consumption spending rose 9 percent. The central bank has warned about loosening fiscal policy ahead of elections and urged discipline to help fight inflation. «The central bank is unlikely to be very happy with these figures,» said JP Morgan economist Yarkin Cebeci. «This is another reason why the central bank should wait for a new government… before starting the easing process.» But Economy Minister Ali Babacan told a news conference the impact of public spending would not be lasting and growth would be provided by increasing private investment and productivity. The AKP has presided over strong growth since coming to power after a 2001 financial crisis and polls show it winning a second term, helped by its good economic record. Turkey is in talks with the World Bank for a strategy program which would include a $6 billion loan, Babacan also said yesterday, adding the program would run from 2008 to 2011. Yesterday’s figures show growth was also stronger than it was in the first quarter of 2006 – when GNP grew 6.4 percent and GDP 6.7 percent – before the central bank starting hiking rates to rein in a lira slide and rising inflation. But the effect of tightening was seen on consumer spending, which rose just 1.6 percent. «This is good news for the disinflation process. These are no surprises as with political uncertainty people tend to spend and invest less,» Cebeci said, noting also the impact of interest rates. Benchmark borrowing rates are 17.50 percent, giving Turkey some of the highest real interest rates in emerging markets. Babacan also said yesterday the government aimed for single-digit lira interest rates, adding that a recent disinflation trend would continue in June and July. Turkey targets growth of 5 percent this year, after GNP growth of 6 percent last year and economists said the above-trend growth in the first quarter would not last. «We expect a sharp deceleration in the growth rate in the second quarter (perhaps dropping to around 2 percent) on the back of base effects,» Finansbank economist Inan Demir said.