TODAY’S ZAMAN – Growth sinks to 2-year low, gov’t blames bad weather

Growth sinks to 2-year low, gov’t blames bad weatherGrowth in Turkeyand#39s economy slowed to 17 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 49 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 02 percent year-on-year in the third quarter compared with 05 percent in the previous quarter Government spending, a key contributor to growth, increased 66 percent meanwhile, investment declined 04 percent. Exports surged 8 percent, while imports fell 18 percent year-on-year in the third quarter, Wednesdayand#39s 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 18 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 Turkeyand#39s 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 22 percent from 21 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. Wednesdayand#39s GDP data briefly dented sentiment in financial markets, with the lira easing to 2675 against the dollar from 22610 beforehand.

The lira pared some losses through the end of the day. The main share index Borsa Istanbul (BIST) traded 1 percent higher on Wednesday.

Missing year-end growth targetThe figures heightened prospects of growth being well below the governmentand#39s 4 percent target for 2014. The average market forecast for 2014and#39s full-year growth stands slightly above 3 percent.

The average growth in the first nine months combined was 28 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 41 percent in 2013. The governmentand#39s year-end GDP growth target stands at 33 percent.

The economy has to grow at least 48 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 andldquois highly unlikely amid to a fall in domestic demand and a sluggish global market performance.andrdquoThe 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 Turkeyand#39s 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.

andldquoTurkey is the big winner from lower oil prices, both on the inflation front and current account position,andrdquo Standard Bankand#39s Timothy Ash said in an e-mailed note to Todayand#39s Zaman on Wednesday.Central bank sets stage for rate cutAnalysts 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 BaII 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.

andquotUnder these circumstances the growth trend is actually good,andquot he told a news conference to outline the bankand#39s monetary policy stance for next year andquotBut it is not the growth we want. As the central bank, we would want growth to be fasterandquotThe 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 ErdoIan have repeatedly called for lower interest rates to support growth.

BaII said inflation, the main factor that has prevented the bank from cutting rates in recent months, could fall andquotvery closeandquot to its medium-term target of 5 percent by the end of next year, with a strong fall possible in the first four months. andquotIt 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,andquot said IS Investment economist Muammer KmurcuoIlu.

SOURCE: Today’s Zaman