Turkey's Economy Grew at Annual 5.5% in Third Quarter, Missing Estimates

Turkey’s economy expanded 5.5 percent in the third quarter from a year earlier, prolonging a boom that has helped the government reduce borrowing and approach investment-grade credit ratings.

Growth slowed from a revised 10.2 percent in the previous three months, the state statistics institute in Ankara said today on its website. The median estimate of nine economists surveyed by Bloomberg was 6.5 percent. The economy expanded 1.1 percent from the previous quarter after seasonal adjustment, the sixth consecutive quarter it has grown.

Record-low interest rates are fuelling domestic demand, driving a faster recovery from the global crisis than any other economy in Europe, and attracting foreign investors including Banco Bilbao Vizcaya Argentaria SA. Growth for the whole year may reach 8 percent, Trade Minister Zafer Caglayan said today after the figures were released.

The third-quarter figure “is slightly lower than expected but still pretty good,” said Haluk Burumcekci, chief economist at Fortis Bank AS in Istanbul. “It’s still supportive of full- year growth of 8 percent or fractionally above.”

Yields on benchmark two-year bonds rose 3 basis points to 7.69 percent at 11:30 a.m. in Istanbul. The lira gained 0.3 percent to 1.504 per dollar.

Consumer credit has surged more than 30 percent this year as Central Bank Governor Durmus Yilmaz kept the benchmark one- week repo rate at a low of 7 percent. Yilmaz yesterday reiterated his goal of keeping it there for about another year.

Consumption Boom

Domestic demand grew an annual 7.6 percent in the third quarter and investment spending increased 31 percent, according to the statistics agency.

The consumer-driven boom has helped push the National 100 share index in Istanbul up 31 percent in dollar terms in the third quarter, almost double the increase on the MSCI Emerging Markets Index. It is also attracting foreign companies. Last month BBVA, Spain’s second-biggest bank, agreed to pay $5.8 billion for 24.9 percent of Turkiye Garanti Bankasi AS.

The economy’s revival comes as Prime Minister Recep Tayyip Erdogan prepares to seek a third term in office in elections due in June. The country survived the global crisis without bailing out any banks and this year Erdogan ended loan talks with the International Monetary Fund, saying Turkey can meet its borrowing needs without external assistance.

Credit rating services have endorsed Erdogan’s optimism. Fitch Ratings upgraded the outlook on its BB+ rating for Turkey, one step below investment grade, to positive from stable on Nov. 24. Moody’s Investors Service, which rates Turkey two levels below investment grade, made a similar change in October.

Debt Burden

Turkey’s rapid rebound is helping reduce its debt burden. The government projects that the ratio of debt to GDP will decline to 42.3 percent this year from 45.5 percent in 2009.

Still, rising consumption, combined with weakness in Turkey’s main export markets in the European Union, is also widening the current-account deficit. The gap in the 12 months ending September was $32.5 billion, more than triple the shortfall a year earlier and equal to about 4 percent of gross domestic product.

Net exports shrank 2 percent in the third quarter, the agency said today. The country’s main auto industry group yesterday reported a 7 percent annual drop in exports in November, though overall output increased 17 percent on domestic purchases.

Economic growth is likely to further in the fourth quarter, said Tevfik Aksoy, chief economist for the Middle East, Turkey and North Africa at Morgan Stanley in London. Part of the reason is the relatively strong performance in the fourth quarter of last year, when Turkey returned to annual growth after the financial crisis. The economy contracted 4.7 percent in 2009.

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

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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