Turkey Lowers Economic Growth Forecast as Budget Deficit Narrows

Turkey lowered its forecasts for economic growth this year and next, and said this year’s budget deficit will be the smallest since 2006.

The government reduced its 2013 growth prediction to 3.6 percent in the latest medium-term program, from 4 percent in the document published a year ago, Deputy Prime Minister Ali Babacan told reporters in Ankara today. It cut the 2014 forecast to 4 percent from 5 percent.

The program was announced amid signs of a slowdown. Industrial production unexpectedly declined in August from a year earlier, the statistics office said earlier today. Turkey’s economy has been hit by the slump in its main European export markets alongside political turmoil in some of its Middle Eastern trade partners.

Yields on Turkish lira bonds slid the most in almost three weeks today, dropping 39 basis points to 7.89 percent, as the lower-than-expected output figure reinforced the central bank’s case for lower interest rates.

Babacan said this year’s budget deficit will be 1.2 percent of gross domestic product, revised down from 2.2 percent in last year’s program. Tight fiscal policy should help Turkey avoid a balance-of-payments crisis, Fitch Ratings said on Sept. 26.

The government forecast a budget surplus before interest payments of 0.9 percent of GDP this year and 1 percent next year, with public debt dropping to 33 percent in 2014 from 35 percent at the end of this year.

The year-end inflation forecast was raised to 6.8 percent from 5.3 percent a year ago, Babacan said. Inflation was 7.9 percent last month. The government left its forecast for this year’s current-account deficit unchanged at 7.1 percent of GDP, and cut the 2014 figure to 6.4 percent from 6.9 percent.

Babacan said Turkey’s low domestic savings forced the country to rely on external borrowing. He said the savings rate was forecast to reach a record low of 12.6 percent of GDP this year.

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