Growth Sinks To 2-Year Low, Gov't Blames Bad Weather

Growth in Turkey's economy slowed to 1.7 percent year-on-year in the third quarter, its lowest since the final quarter of 2012, official data revealed on Wednesday, with the government holding weak agricultural output due to bad weather conditions responsible.

The third quarter gross domestic product (GDP) growth was well below the median market estimate of 3 percent. The weaker-than-expected growth in the third quarter was caused by bad weather that triggered a fall in agricultural output, Deputy Prime Minister Ali Babacan said in a statement on Wednesday. A 4.9 percent year-on-year decline in agricultural production in the third quarter and poor domestic consumption were cited among the key factors for the low growth.

Household consumption, which makes up two-thirds of the economy, grew only 0.2 percent year-on-year in the third quarter compared with 0.5 percent in the previous quarter. Government spending, a key contributor to growth, increased 6.6 percent; meanwhile, investment declined 0.4 percent. Exports surged 8 percent, while imports fell 1.8 percent year-on-year in the third quarter, Wednesday's data revealed.
The third quarter growth data comes on the heels of a relatively strong industrial activity in this period. Industrial production in October fell 1.8 percent from the previous month, registering the biggest monthly loss so far this year, sending mixed signals about the final quarter growth.

Turkey was the second-fastest-growing G20 economy after China back in 2008 and has lost much of this vigor over the past years, sliding towards the end of the list of fastest-growing G20 members along with Brazil and South Africa. Turkey's ruling Justice and Development Party (AK Party) has a strong record on the economy and can ill afford a slowdown ahead of a parliamentary election next June. It has exerted pressure on the central bank to lower interest rates.

The institute revised growth estimates to 2.2 percent from 2.1 percent for the second quarter when the GDP was hit by drought-affected agricultural output, weakness in European export markets and wars in Ukraine and Iraq. Wednesday's GDP data briefly dented sentiment in financial markets, with the lira easing to 2.675 against the dollar from 2.2610 beforehand. The lira pared some losses through the end of the day. The main share index Borsa İstanbul (BİST) traded 1 percent higher on Wednesday.

Missing year-end growth target

The figures heightened prospects of growth being well below the government's 4 percent target for 2014. The average market forecast for 2014's full-year growth stands slightly above 3 percent.

The average growth in the first nine months combined was 2.8 percent and there are no signals of a great rebound in the final quarter. This indicates a worse economic performance for 2014 than last year; the Turkish GDP grew 4.1 percent in 2013. The government's year-end GDP growth target stands at 3.3 percent. The economy has to grow at least 4.8 percent in the final quarter to realize the government goal, local securities firm Integral said in an e-mailed note on Wednesday, adding that realizing the end-2014 growth target “is highly unlikely amid to a fall in domestic demand and a sluggish global market performance.”
The economic slowdown will continue in 2015 due to stagnation in its key partner, the EU, as well as lingering tension in the Middle East and an anticipated recession in Russia, according to Turkey's ALB Securities. ALB predicted an even weaker exports performance, falling domestic demand and that private sector investments will push GDP growth lower, to 2 percent, in 2015.

Some other analysts were relatively optimistic. “Turkey is the big winner from lower oil prices, both on the inflation front and current account position,” Standard Bank's Timothy Ash said in an e-mailed note to Today's Zaman on Wednesday.

Central bank sets stage for rate cut

Analysts have warned that the weak third quarter economic growth is likely to result in further government pressure on the central bank to lower interest rates.

Lower oil prices could help inflation fall to close to 5 percent next year, the central bank said on Wednesday, suggesting it will have more room to lower interest rates as growth slows and an election approaches. Central Bank Governor Erdem Başçı said the growth had come solely from exports and that the fourth quarter may be slightly stronger, but noted weak European demand and political tensions in Middle Eastern and Russian export markets were challenges.

"Under these circumstances the growth trend is actually good," he told a news conference to outline the bank's monetary policy stance for next year. "But it is not the growth we want. As the central bank, we would want growth to be faster."

The ruling AK Party, which has built its reputation partly on rapid economic development, faces a parliamentary election in June and both ministers and President Recep Tayyip Erdoğan have repeatedly called for lower interest rates to support growth. Başçı said inflation, the main factor that has prevented the bank from cutting rates in recent months, could fall "very close" to its medium-term target of 5 percent by the end of next year, with a strong fall possible in the first four months. "It is clear that the central bank is inclined to start another easing cycle in 2015 on the back of a slowdown in domestic demand and the disinflationary global environment," said IS Investment economist Muammer Kömürcüoğlu.

(Cihan/Today's Zaman)