Growth slows in Turkey

ISTANBUL – Turkey’s third-quarter gross national product growth halved to an annual 2 percent, data showed yesterday, and economists said the lower-than-expected figure could encourage more interest rate cuts from the central bank. Gross domestic product (GDP) grew 1.5 percent year-on-year in the third quarter, the lowest rate since early 2002 when Turkey was recovering from an economic crisis. A Reuters poll had given median forecasts of 4.3 percent for GNP and 4.45 percent for GDP and both figures came in below all forecasts. But in more recent data, the institute said industrial production grew 7.9 percent year-on-year in October, compared to a median forecast of 6.7 percent from a Reuters poll. The dismal growth data – which compares with a year-end government target of 5 percent and growth of 4.1 percent in the second quarter – come three days ahead of the central bank’s monetary policy committee meeting. «This is the lowest growth rate registered since the first quarter of 2002 and provides further support for monetary policy easing,» said Inan Demir, economist at Finansbank in Istanbul. Economists are divided as to whether the bank – which has cut the benchmark borrowing rate 125 basis points since September to 16.25 percent – will cut by 25 or 50 basis points at its meeting on Thursday. «If they were leaning toward a strong rate cut (of 50 basis points), this will confirm their view,» said Oyak Securities economist Mehmet Besimoglu. Growth had been averaging 7 percent a year since the 2001 crisis, but sharp interest rate hikes in the middle of 2006 amid rising inflation have crimped growth. The bank continues to keep a close eye on inflation risks as consumer prices rose an annual 8.4 percent in November, twice the year-end target of 4 percent. But industrialists are calling for rates cuts, saying current levels cripple growth as Turkey struggles to create enough jobs for a fast-growing population. The third quarter covered the last weeks of campaigning for the July 22 parliamentary elections, when economists say the government spent heavily to woo voters. Data showed consumer spending grew 3.6 percent – after falling 0.7 percent in the second quarter – and government spending rose a faster 6.4 percent. The conservative Justice and Development Party (AKP), which also campaigned on a strong economic record, was re-elected and the following month parliament elected former Foreign Minister Abdullah Gul to the presidency in a controversial vote. «Apparently the effect of double elections has been slightly more on trading activity (than expected),» Besimoglu said. Construction growth fell to 5.4 percent in the third quarter from 15.7 percent in the second while the commerce component showed growth of 1.3 percent, compared to 3.4 percent in the previous quarter. Economists said the agriculture component surprised them, falling 7.8 percent. The institute revised second-quarter GNP and GDP growth to 4.1 percent from an initially reported 3.9 percent.