Turkey’s industry minister talks of 2017 growth of 7.5% amid economic derailing concerns

Turkey’s industry minister talks of 2017 growth of 7.5% amid economic derailing concerns
Faruk Ozlu expects GDP growth in 2017 to measure 7.5%.
By bne IntelliNews March 21, 2018

Turkey’s industry and technology minister is expecting the country to post GDP growth of 7.5% for 2017. Government incentives and a strong contribution from domestic industries would secure the outcome, Faruk Ozlu said in a March 21 speech given in Istanbul.

Turkey's fourth quarter and full year growth figures for 2017 are scheduled for release next week. The third quarter clocked up a whopping 11.1%, the fastest expansion in six years. But concerns about overheating have largely tempered any satisfaction with the surging growth performance, partly driven by government stimuli such as a TRY250bn ($63.6bn) credit guarantee fund (CGF) to backstop lending. Anxieties centred on over-lending were already becoming pronounced during the autumn of last year, and they were underlined by a March 14 report from Capital Economics which presented mounting evidence that the Turkish economy is overheating and could falter, thus producing 2018 GDP growth of only around 3%.

The Turkish lira (TRY) has endured a torrid time in March to date, sinking slightly over 3% against the US dollar since the end of February. That compares with the 0.1% rise in the MSCI emerging markets currencies gauge over the same period. By the close on March 21, one dollar bought TRY3.9074, a slight gain on the TRY3.9332 seen at the start of trading. In the past 12 months, the TRY has devalued 7.7%.

The extent to which Turkey depends on foreign demand and investment to finance its economy has come fully into view, with the markets rattled by the economy’s vulnerability to external shocks. On a 12-month sum basis the current account deficit was equivalent to 6.2% of GDP in January—up from 4.8% of GDP only 12 months ago. Core inflation, meanwhile, is stubbornly running at 12% on an annual basis, Eurostat figures show.

It is clear that there is a market consensus calling for Turkey’s central bank to address some of the key economic difficulties with some substantial tightening but Turkish President Recep Tayyip Erdogan continues to instead push for his unorthodox prescription of interest rate cuts. His aversion to conventional economic advice was apparent on March 9 when he launched an attack on credit rating agencies two days after Moody’s Investors Service cut Turkey further into junk after concluding that its government seems focused on short-term measures, undermining effective monetary policy and economic reform. His senior adviser Cemil Ertem followed up in a television interview, saying Moody’s decision on Turkey’s sovereign rating lacked rationality. He added that the rating agency was acting like an “economic hitman” and suggested that Turkey should review its agreements with credit rating companies.

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