Turkey Growth Outpaces China Piling Pressure on Central Bank
Turkey’s economic growth accelerated to 11 percent in the first quarter, outpacing China’s and adding to the pressure on the central bank to rein in a credit-driven boom that may threaten financial stability.
The state statistics office in Ankara announced the figures today, at the same time it reported a record trade deficit for May. Growth in the quarter was faster than in any other member of the Group of 20 developed economies. The median estimate in a Bloomberg survey of 13 economists was 9.7 percent, and the previous quarter’s growth rate was 9.2 percent. China’s economy grew 9.7 percent in the first quarter.
Central bank Governor Erdem Basci says the boom poses risks to stability as the current-account deficit widens to record levels. Basci’s solution has been to impose limits on bank lending without raising interest rates, a move he says would strengthen the currency and hurt exports. Pressure for a more orthodox response may escalate after today’s figures.
The first-quarter boom “underlines the need for monetary tightening in the future, along the lines of conventional interest-rate moves,” Nigel Rendell, an economist at RBC Capital Markets in London, said in e-mailed comments. This is “very strong growth in a world where economic growth is all too frequently lacking.”
The lira fell 0.2 percent to 1.6247 at 11:30 a.m. in Istanbul. Yields on benchmark two-year lira bonds fell 3 basis points to 9.17 percent.
Election Win
The economy grew 1.4 percent from the previous quarter, according to seasonally adjusted figures announced today. That was slower than the 3.6 percent quarter-on-quarter growth in the last three months of 2010.
The expansion in the $735 billion economy helped Prime Minister Recep Tayyip Erdogan win a third term in national elections on June 12. Budget spending, excluding interest payments on debt, rose an annual 12 percent in first five months of the year, faster than the 8 percent growth that the government plans for 2011.
Basci is seeking to rein in the boom using bank reserve requirements rather than interest-rate increases that may lure more short-term cash to the country, strengthen the currency and further weaken exports already hurt by the slowdown in Europe, Turkey’s main market.
The 12-month current-account gap more than doubled from a year earlier to $63.4 billion in April, the most since records began in 1984 and equivalent to about 9 percent of GDP. The monthly trade gap rose to a record $10 billion in May, the government statistics office said today.
‘Absolutely No Sign’
There is “absolutely no sign that the economy is slowing or responding to the central bank’s unorthodox policy,” Tim Ash, chief economist for emerging markets at RBS in London, said in an e-mailed comment. “The current account deficit is on track to hit 10 percent of GDP unless policy adjusts.”
The central bank kept the benchmark one-week repo rate at a record low of 6.25 percent on June 23. Since December it has raised the share of one-month deposits that lenders must leave as reserves at the central bank to 16 percent from 6 percent.
Loan volume expanded at an annual rate of about 36 percent in the year to June 17, according to the bank regulator. Deputy Prime Minister Ali Babacan is among officials who have said 25 percent would be healthier. Banking industry profits increased 8.7 percent to 21.9 billion liras ($13 billion) last year, the regulator said.
Higher reserve requirements have helped push the index of banking shares, which includes Yapi & Kredi Bankasi AS, co-owned by Italy’s UniCredit SpA, down about 10 percent this year, double the drop on the main ISE National 100 index. (XU100)
To contact the reporters on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net.
To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.
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