Turkish Economy Grows 7.4% in First Quarter of 2018

BATAK CENTER FOR EUROPEAN STUDIES -- The Turkish economy expanded 7.4 per cent year-on-year in the first quarter of 2018, official data showed on Monday, exceeding forecasts and giving President Tayyip Erdogan and his ruling AK Party some welcome news ahead of June 24 elections.

Erdogan announced two months ago that Turkey would hold the presidential and parliamentary elections a year and a half ahead of schedule - a move that analysts said would allow him to campaign just as the economy is likely to have peaked.

Erdogan, who has overseen both tremendous economic growth and a widening crackdown against opponents during a decade and a half in power, has unnerved investors with an unorthodox stance on monetary policy that has helped send the lira currency down some 15 per cent this year.

"Crucially, this predates the recent financial market turmoil," Jason Tuvey of Capital Economics said in a note to clients, referring to the faster-than-expected growth.

"An abrupt slowdown is on the cards over the coming quarters."

Growth in the first three months of the year outpaced the forecast for a 7.0 per cent expansion in a Reuters poll and was up from 7.3 per cent in the previous quarter.

The economy grew 2.0 per cent on a seasonally and calendar-adjusted basis from the previous quarter, the data from the Turkish Statistical Institute also showed.

The lira weakened 1.3 per cent to 4.5234 against the US dollar by 0846 GMT, easing from 4.4885 before the data. Istanbul stocks fell 2 per cent.

The lira has been hammered this year on concern about Erdogan's grip on monetary policy, prompting the central bank to tighten by 4.25 percentage points since late May to defend the currency.

"Past experience shows that a tightening of financial conditions on the scale witnessed over recent months tends to result in an abrupt slowdown in annual GDP growth," Capital Economics' Tuvey said.

However, the economy ministry said Turkey had the potential to exceed its growth forecast of 5.5 per cent this year.

Erdogan, a self-described "enemy of interest rates", wants to see lower borrowing costs to spur credit growth and construction, particularly ahead of the elections.

Investors, who fear the economy is overheating, have worried about the central bank's ability to rein in double-digit inflation in the face of pressure from Erdogan.

Separate data showed that the current account deficit in April widened to $5.426 billion, exceeding a Reuters forecast for a deficit of $5.3 billion.

Erdogan is seen falling short of a first-round victory, a poll showed last week, although he has far greater support than his closest challenger.

The president and his ministers have portrayed the sell-off in the currency as an attack on the economy by outside forces, including ratings agencies, looking to weaken Turkey.

Last week Moody's cut its ratings on 17 Turkish lenders, citing concern about the rising cost of their foreign currency funding, given the decline in the currency.

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