ISTANBUL: Turkey's economy grew a better-than-expected 2.9 percent last year but still fell short of a government target, data showed on Tuesday, a sign the central bank could face more political pressure for a rate cut before June's general election.
The slowdown from 4.2 percent in 2013 is a major headache for the ruling AK Party, which has had a solid record on the economy since coming to power in 2002 and is aiming for a sweeping victory at the polls.
President Tayyip Erdogan wants the party he founded to gain a two-thirds majority, which would allow it to push through a constitutional change and create an executive presidency. He has fulminated against interest rates in the election run-up, raising investor concern about central bank independence.
"The central bank was already under attack from the government when Turkey was growing at a faster clip," said Nicholas Spiro of Spiro Sovereign Strategy, a consultancy.
"The combination of weak growth, a parliamentary election and fragile sentiment puts the central bank in a very difficult spot to say the least."
Economic growth in 2014 exceeded the 2.7 percent expected by economists, but missed the government's target of 3.3 percent, the data showed. Output was hampered by global market volatility, geopolitical developments and bad weather, Deputy Prime Minister Ali Babacan said.
Although 2014 output beat expectations, economists say first-quarter growth is expected to be lacklustre.
"The hard data of the latest months -- everything is quite negative," said Tatha Gose, a senior emerging market economist at Commerzbank.
AFTER THE ELECTION
Finance Minister Mehmet Simsek said Turkey's $800 billion economy would nonetheless improve after the polls.
"Delayed investment and consumption due to financial volatility slowed down growth somewhat in the first quarter of 2015," he said in a statement.
"But we expect that growth will accelerate in the second half of the year with the increase in both political and financial predictability."
The latest data may lead Erdogan to renew calls for a rate cut, but the weakening currency could give the central bank some breathing room, analysts said. The lira is down around 12 percent this year, the sixth-worst performance in a basket of 25 emerging market currencies, according to Thomson Reuters data.
The central bank was able to resist Erdogan's pressure this month, leaving rates on hold because the lira's slide risks stoking inflation.
"At the moment, they are keeping policy tight as possible," said Erkin Isik, a strategist at TEB-BNP Paribas. "I think they will stick to this policy as long as depreciation pressure continues."
Gross domestic product expanded 2.6 percent year-on-year in the fourth quarter, well above a forecast of 2.0 percent in a Reuters poll.
Output grew 0.7 percent from the previous quarter on a seasonal- and calendar-adjusted basis. The institute revised third-quarter GDP growth to 1.9 percent year-on-year from an initial 1.7 percent.
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