Turkey forecasts return to growth

By Delphine Strauss in Ankara

Turkey’s economy should return to growth by the end of the year, Durmus Yilmaz, the country’s central bank governor, said on Thursday after data showed the severity of the recession easing in the third quarter of the year.

Gross domestic product fell 3.3 per cent year on year in the three months to September, slightly better than expected, but with downward revisions for earlier quarters taking the contraction over the first 9 months of the year to 8.4 per cent.

The central bank has acted aggressively to counter the downturn, cutting interest rates by more than 10 percentage points in the past year as inflation fell to a historical low close to 5 per cent. But economists think the bank has little scope for further easing and may need to raise rates as the global recovery gains pace.

Mr Yilmaz said inflation could be volatile early in 2010 but would undershoot a 6.5 per cent target for the year. He set a new target of 5.5 per cent inflation for 2012.

The government is forecasting growth of about 3.5 per cent in 2010, a sluggish recovery by Turkish standards. Recent data have been mixed, showing a surprisingly strong industrial rebound in October, but little enthusiasm for new investment, and shaky confidence among both businesses and consumers.

“The tide is turning, but slowly,” said Guldem Atabay, economist at ExpresInvest. Timothy Ash, at the Royal Bank of Scotland, said: “Turkey is a fairly dynamic economy, so I would still assume it should lead the regional recovery.”

The faltering economy contrasts with a financial stability that is unusual, by Turkish historical standards. Mr Ash noted earlier this week that prices suggested Turkish five-year credit default swaps were now considered less risky than those of Greece – and several other eastern European and Baltic countries.

The treasury on Thursday announced borrowing plans for 2010, welcomed by analysts, saying it would roll over 99.5 per cent of domestic debt in 2010 and might launch longer-term 10 year lira bonds. It left the door open for a programme with the International Monetary Fund, after more than a year of talks, saying plans would be revised if there were any additional funds from international institutions.

Mr Yilmaz said the central bank would buy government bonds worth 8bn TL ($5.3bn, €3.6bn, £3.3bn) in 2010, essentially replacing its current portfolio. Yarkin Cebeci, economist at JPMorgan, welcomed the confirmation that it “had no intention of helping the Treasury in rolling over its debt”, saying it would improve the bank’s credibility.

Copyright The Financial Times Limited 2009.