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Turkey sees “sharp GDP contraction” as crisis bites

Posted on: April 15, 2009

Reuters – Tuesday, April 14

* Turkey cuts 2009 GDP growth forecast to -3.6 pct

* Turkey lowers C/A deficit forecast to $11 bln from $50.4

* Turkey says sees 3.3 pct GDP growth in 2010

* 2009 budget deficit raised to 48 bln lira from 10.4 bln

By Hatice Aydogdu and Selcuk Gokoluk

ANKARA, April 13 – Turkey on Monday forecast its economy would contract 3.6 percent in 2009, slashing an earlier forecast of 4 percent growth after the global financial crisis hammered the country’s once stellar economic performance.

After months of falling output, rising unemployment and a slump in demand the government bowed to pressure to revise its economic forecasts, and said the new figures would form the basis of its talks with the International Monetary Fund .

The government revised down its 2009 current account deficit expectation to $11 billion from a current target of $50.4 billion, helped by lower oil price costs and weak demand, but said it expected its budget deficit to swell to 48 billion lira from a previous forecast of 10.4 billion lira.

Economy Minister Mehmet Simsek told a press conference Turkey would continue talks with the global lender and a meeting could come within the next two weeks, although he added there was not yet 100 percent agreement.

He added Turkey eyed a three-year stand-by agreement with the IMF, but he declined to comment on the size of the loan.

Business leaders have been clamouring for the government to agree a new loan deal with the IMF to replace the $10 billion accord which expired last May. Ankara has been reluctant to agree to some fiscal reforms sought by the Fund, but markets now expect a deal will be concluded imminently.

“We will continue to pursue growth and employment friendly fiscal and monetary policies and we will not put extra burden on the taxpayers as long as we do not have to,” Deputy Prime Minister Nazim Ekren told the same news conference.

The Turkish lira <IYIX=> weakened further after revised economic forecasts, trading at 1.5725 at 1248 GMT after trading at 1.5690 earlier on Monday.

Ayse Colak, head of research at Tera Stock Brokers said the new 2009 GDP performance forecast was in line with market consensus, and a lesser current account deficit would ease pressure on the lira.


A larger budget deficit was also unsurprising as tax revenues fall and the government spends more to support economic recovery.

The government forecasts unemployment rate to stand at 13.5 percent in 2009 and then rise to 13.9 percent in 2010. The central administrative budget is expected to post a primary surplus, which excludes interest payments on the government debt, at 1.0 percent in 2009.

The government’s borrowing requirement is expected to rise to 5.0 percent of the GDP in 2009, from 1.8 percent in 2008.

The previous forecast of 4 percent growth this year had appeared increasingly unrealistic, particularly with analysts forecasting contraction of around 3.5 percent, but the government focused on municipal elections at the end of March before revising its expectations.

“They are much more realistic targets, and only marginally different from ours. On the whole, they make sense and I think the new targets will result in a smoother negotiating process with the IMF,” said JP Morgan Chase analyst Yarkin Cebeci.

Turkey’s economy shrank by more than six percent in the last quarter of 2008 — the economy’s first contraction in seven years. Voters punished Prime Minister Tayyip Erdogan’s AK Party with a reduced share of the vote in the March poll.

The government announced a series of economic stimulus packages it hopes will kick-start the economy, although analysts say the measures, such as value-added tax breaks, came too late to halt falling demand.

Turkey retained a 7.5 percent official inflation target, while the government reduced its end-2009 inflation estimate to 6.9 percent, Ekren said.

The government forecasts $21.2 billion trade deficit for 2009, $27.5 billion for 2010 and $37.5 billion for 2011. The Turkish trade deficit was $53.2 billion in 2008.


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