Turkey's economic outlook positive but recovery weak

Recent economic indicators have reinforced a positive outlook for Turkey's economy, which is struggling out of the mire of the global financial crisis, but the road of recovery is expected to be long and winding in the coming months.

"Improvements in many leading indicators are still tentative, problems across credit markets linger and employment remains in a precarious state, all suggesting that the recovery will likely be anemic and protracted," said Turkey's Central Bank in a report Tuesday.

Turkey's economy, which contracted an annual 7 percent in the second quarter after a record 14.3-percent slump in the first quarter, will return to growth in the fourth quarter, Central Bank governor Durmus Yilmaz told a press conference in Ankara on Tuesday.

In the July to August period, industrial production declined by7.7 percent year-on-year while posting a modest increase over the second quarter in seasonally adjusted terms, the Central Bank report said.

In the same period, export quantity index rose sharply from the second quarter in seasonally adjusted terms, but fell by 7.6 percent year-on-year, according to the report.

It said unemployment was down in July to August from the second quarter in seasonally adjusted terms but it remains to be seen whether this would turn into a robust recovery across the labor market.

Official data show inflation rose 5.27 percent year-on-year in September, much slower than the annual inflation rate of 11.13 percent last September, as domestic demand remained flat.

In the third quarter, Turkey's tourism revenue decreased by 4.6percent from the same period of last year to 9.53 billion U.S. dollars as the crisis continued to weigh down tourist spending, according to data from the Turkish Statistics Institute.

"Although recent data releases indicate that the worst is likely to be over, concerns regarding the health of the global economy remain," said the Central Bank, adding "in particular, ongoing problems in credit and labor markets pose downside risks for global activity."

It said it would consider another cycle of rate cuts should global conditions deteriorate again and consequently delay the domestic recovery, noting "it would be necessary for the monetary policy to maintain an easing bias for a long period of time."

The bank is likely to reduce the interest rate by a "limited" amount this year and keep it unchanged through 2010, said Yilmaz.

The London-based Fitch Ratings placed Turkey's credit rating on "Rating Watch Positive" on Tuesday, saying the country's rating has a "strongly likelihood of an upgrade" from the current BB-rating.

"In contrast to previous shocks, Turkey has been able to implement counter-cyclical fiscal and monetary policies to help stabilize the economy without sparking an exchange rate crisis," said the rating agency in a statement.

The Central Bank has slashed the benchmark borrowing rate by 10percentage points to a record low of 6.75 percent to shore up the ailing economy, accompanied by the government's temporary reductions of sales taxes on purchase of automobiles and white goods.

The bank said last week it forecast the Turkish economy to slump 5.5 percent year-on-year this year, while the International Monetary Fund estimated the annual contraction at 6.5 percent, the deepest decline since 1945.

Industrialists have warned about risks in Turkey's recovery process. Optimistic sentiments about the end of the global economic crisis are devoid of a valid base, considering the downward trend in industrial output figures, developments in the labor market and negative capacity utilization numbers, the Turkish Confederation of Employers Unions (TISK) said in its monthly economic outlook report for October released on Tuesday.

Some leading countries in the global economy are really on the verge of a recovery, but developments in Turkey do not show equally positive signs of recuperation, the Turkish daily Today's Zaman quoted the report as saying.

Turkey saw its industrial production index down 6.3 percent in August 2009 from a year ago and down 5.7 percent from July this year.

In the three months to August, unemployment rate fell to 12.8 percent from 13 percent a month earlier but higher than the 9.9 percent in the same period of 2008, government figures show.

Source: Xinhua