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Turkey Third-Quarter GDP Slows to Lowest Level Since 2009

Dec. 10 (Bloomberg) -- Turkey’s economic growth eased to the slowest pace since 2009 in the third quarter, challenging the government’s year-end target and reinforcing expectations that the central bank will cut interest rates.

Gross domestic product, the value of all goods and services produced, advanced 1.6 percent on an annual basis after averaging 3.2 percent in the first six months of the year. The third-quarter expansion was less than the median estimate of 2.5 percent in a Bloomberg survey of 10 economists.

Turkish policy makers are trying to engineer a soft landing as the European Union, its largest trading partner, is expected to contract 0.5 percent in 2012, according to the European Central Bank. Turkish bank lending last year helped fuel a current-account deficit that reached 10 percent of GDP and drove the currency down more than 15 percent.

Today’s report along with other recent economic indicators that point to slowing growth and a declining inflation rate “confirm our rate cut call,” Turker Hamzaoglu, an economist at Bank of America Merrill Lynch, said in response to e-mailed questions.

Turkey’s economy grew 0.2 percent on a quarterly basis, according to seasonally and working day-adjusted figures.

The lira depreciated 0.1 percent to 1.7911 to the dollar at 1:48 p.m. in Istanbul. Yields on the benchmark two-year bonds rose 1 basis point to 5.77 percent.

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The central bank has dropped the top end of its interest-rate corridor by 250 basis points since September to 9 percent and kept bank borrowing costs near the bottom of the range in recent weeks, without reducing the 5.75 percent benchmark. Its overnight borrowing rate, the bottom of the corridor, is 5 percent.

Inflation eased to 6.4 percent in November, the lowest level in 14 months.

The bank’s monetary policy committee next meets Dec. 18. Hamzaoglu said that starting this month and lasting until the end of the first quarter of next year policy makers will cut the policy rate by 75 basis points to 5 percent and the overnight lending rate by 100 basis points to 8 percent.

Today’s report would have been worse were it not for a rise in Turkish exports that helped temper a drop in domestic demand, Nihan Ziya-Erdem, an economist at Garanti Bank said by telephone in Istanbul today.

“If we hadn’t seen this contribution, it would have been a severely hard landing,” Ziya-Erdem said.

The mining sub-index declined 3.9 percent, while the manufacturing sub-index decreased 5.9 percent, the statistics agency said.

To contact the reporter on this story: David Neylan in Ankara at dneylan1@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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