Agriculture gives Turkey surprisingly strong growth

Some economists said the 4% figure had prompted them to lift full-year expectations

Turkish output grew by a surprisingly strong 4 per cent in the third quarter, bolstered by big gains in agriculture and marking a rare bright spot for an economy that has been dogged by political worries for much of the year.

Some economists said the growth, which far outstripped the forecasts in a Reuters poll for a 2.8 per cent increase, had prompted them to lift their fullyear expectations. Thursday’s data also helped shield the lira currency from a broader sell-off in emerging markets sparked by a slide in South Africa’s rand.

Turkey has been beset by worries about political uncertainty in the run-up to a November 1 election and concerns about central bank independence, sending the lira to a record low and prompting foreigners to sell $6 billion (Dh22 billion) in local bonds.

However, the data showed that fundamentals remain resilient, with agriculture and consumer demand particularly strong.

Next year would be “much better”, Deputy Prime Minister Mehmet Simsek said, promising that structural reforms would be enacted and the growth potential increases.

Simsek, the newly appointed economy tsar, has been at pains to reassure investors about the AK Party’s (AKP’s) commitment to fiscal discipline since its swept back to single-party rule in November, beating expectations.

“Growth will likely lose momentum in the last quarter of the year. However, the surprise election outcome and the resulting sharp recovery in consumer confidence suggest that the slowdown should be much milder than initially expected,” said JP Morgan economist Yarkin Cebeci, adding he had revised his 2015 growth forecast to 3.9 per cent from 3.3 per cent.

Rates

Yet investors remain worried about the central bank’s independence. It faces a crucial credibility test when it meets to decide policy on December 22. If it fails to follow through on previous hints and does not raise rates it tandem with the US Federal Reserve, that will further undermine investor confidence in its independence, say analysts.

President Tayyip Erdogan equates high borrowing costs with treason, leading to concern about political pressure on monetary policy.

The positive outlook for Turkey reflects one of its “underlying credit strengths — the durability and resilience of growth, which has been key to the AKP’s electoral success over the past decade,” he said in emailed comments.

The lira, which has lost around 20 per cent of its value against the dollar this year, firmed slightly after the data.