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Domestic demand boosts Turkish economy, but growth slows
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ISTANBUL: Turkey’s economy grew more than expected in the third quarter, thanks to strong domestic demand and private investments, and its economy minister forecast full-year growth would exceed the government target, despite a slowdown in quarterly growth.

Like other major emerging economies, Turkey is struggling with the effects of the prospective withdrawal of U.S. monetary stimulus. But Tuesday’s data showed the country of 76 million was doing better than most in growth terms.

Output grew 4.4 percent year-on-year in the third quarter, institute data showed, beating the forecast from a Reuters poll of 4.05 percent. That was twice as fast as last year, when strong exports helped the economy to grow.

“Today’s data shows the composition of GDP growth is evolving toward private consumption and investments, from public spending and positive net exports,” Burgan Securities economist Haluk Burumcekci said.

“Given the stronger than initially expected performance in the second half, we are revising our GDP growth forecast to 3.8 percent for 2013, from 3.5 percent,” he said.

However, the structure of the expansion continues to worry economists and policymakers. A current account gap of almost $60 billion, caused by huge fuel imports, exposes Turkey to swings in global money flows and oil prices.

Exports held back growth in the third quarter, falling 2.2 percent from a year earlier, despite a depreciation in the lira.

Weak external trade put the brakes on quarterly growth. On a seasonally adjusted quarterly basis, gross domestic product expanded 0.9 percent in the third quarter, compared with the 2.1 percent growth seen in the second quarter and 1.5 percent in the first quarter.

The drop in exports will widen the current account deficit, now around 7 percent of GDP. The expected reduction of U.S. monetary stimulus is also hanging over Turkey. It risks reducing capital inflows to the country, worsening the deficit.

The lira firmed slightly after the GDP data while shares edged lower, with the figures not expected to have much effect on central bank policy.

“Monetary policy is already pro-growth,” said Mehmet Besimoglu, chief economist at Oyak Securities. “The central bank kept interest rates low in the third quarter, which supported growth, despite the Fed. Unless there is significant depreciation in the lira, the central bank policy will continue to support growth.”

The central bank left interest rates unchanged last month but signaled more tightening of its day-to-day monetary policy because of the threat the Federal Reserve will begin to slow its stimulus, which could weaken the lira and stoke inflation.

Turkey has been among emerging economies worst hit by the shift in global capital since the U.S. Federal Reserve signaled it would rein in its ultra-easy monetary policy. The lira hit its weakest-ever level of 2.0840 in September.

The Turkish economy had been one of the developing world’s best performers over the past five years. But it slowed sharply last year, and the central bank has ruled out growth-damaging rate hikes to support the currency.

The Reuters poll last week forecast economic growth of 3.55 percent for this year and 3.7 percent in 2014.

The government is officially expecting growth of 3.6 percent this year. Economy Minister Zafer Caglayan said 2013 growth could be above this target.

“The developments in industrial production, domestic demand and energy consumption in the third quarter signaled we would reach growth numbers announced today,” Caglayan said. “Fourth- quarter growth could be slightly lower, but it seems like we will finish the year with growth over the 3.6 percent official target.”

With the economy expanding just 2.2 percent last year compared with around 9 percent in 2010 and 2011, and an election cycle beginning next March, pressure to maintain growth is intense.

A version of this article appeared in the print edition of The Daily Star on December 11, 2013, on page 6.
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