Turkish Economy Grew 10.3% in Second Quarter on Record Low Interest Rates

Turkey’s economy grew an annual 10.3 percent in the second quarter as record-low interest rates helped push output above the level it reached before the 2008 collapse of Lehman Brothers Holdings Inc.

The increase, which matched China’s as the fastest expansion in the period among the Group of 20 major economies, followed growth of 11.7 percent in the first quarter, the state statistics agency in Ankara said today on its website. The median estimate of seven economists surveyed by Bloomberg was 9 percent. The economy grew 3.7 percent from the previous quarter after seasonal adjustment.

Turkish consumers are driving a recovery from last year’s 4.7 percent slump. Bank loans for cars, homes and other purchases have risen every week since January, and consumer confidence rose to the highest for more than two years in the second quarter. To ensure the rebound continues, central bank Governor Durmus Yilmaz has held the key interest rate at 7 percent for nine months.

“The striking figure is the quarter-on-quarter growth of 3.7 percent, coming on top of a revised 0.4 percent in the first quarter that means we’re now above pre-Lehman levels,” said Inan Demir, chief economist for Finansbank AS in Istanbul.

Seasonally adjusted gross domestic product in the quarter exceeded the previous peak recorded in the first three months of 2008, according to today’s figures.

Stocks rose after the growth figures were released, with the benchmark ISE-100 index adding 0.2 percent at 10:25 a.m. in Istanbul, extending yesterday’s record high. Yields on benchmark bonds fell 3 basis points to 8.04 percent.

Turkish Sales

Rising domestic spending has helped companies boost earnings. Ford Otomotiv Sanayi AS, the Istanbul-based unit of Ford Motor Co., raised its forecast for Turkish sales by 5.7 percent on Aug. 20 after second-quarter profit rose 47 percent from a year earlier.

Local sales also offset the risk of weaker demand in Turkey’s main export markets in the European Union. The central bank cited the EU debt crisis last month as one reason for keeping rates unchanged “for a while longer.”

“As far as monetary policy goes, I don’t think this will have much impact on the central bank, because their focus is slower global growth,” Demir said.

Re-election Bid

Economic recovery is key to Prime Minister Recep Tayyip Erdogan’s bid to win a third term in elections that must be held by July. The premier’s campaign received a boost on Sept. 12 when he won a referendum on constitutional changes to strengthen his administration’s powers. That helped push the main ISE National 100 share index to a record high yesterday.

“This year is going to be one of strong growth, even if the pace slows to more realistic levels in the second half,” Sengul Dagdeviren, chief economist at ING Bank AS in Istanbul, said in a phone interview before today’s figures were announced. “Domestic demand is what’s setting the pace.”

Turkey survived the global crisis without bailing out any banks, and this year Erdogan ended loan talks with the International Monetary Fund, saying the country can meet its borrowing needs without external assistance.

The IMF expects Turkey’s economy to grow 6.1 percent this year. The government says its forecast of 3.5 percent is outdated and plans to revise it in the next month.

To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net.

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