Turkish growth, budget to beat forecasts

Turkey's GDP will likely grow more than 4.5 percent this year and its budget deficit fall more quickly than forecast, a minister said, as the government presented an upbeat view of the economy ten days ahead of an election. Finance Minister Mehmet Simsek said on Thursday measures to tackle Turkey's spiralling current account deficit, considered a key risk to stability by investors and ratings agencies, were starting to work.
The ruling AK Party, expected to comfortably win a third term in the June 12 parliamentary vote, has made Turkey's transformation from a financial basket case to a fast-growing economy on the verge of an investment grade rating a key part of its re-election campaign. The budget deficit is likely to fall below the targeted 2.8 percent of gross domestic product, Economy Minister Ali Babacan told reporters on Thursday, as the state benefits from higher revenues and tax restructuring.
The economy would also likely grow by more than a conservative forecast of 4.5 percent of output this year, he said. Turkey cut its budget deficit to a provisional 3.6 percent of GDP in 2010 from 5.5 percent in 2009, while the economy grew by 8.9 percent in 2010. First-quarter growth could be as high as 9 percent, the government said recently. The government has come under fire from those who believe it has not doing as much as it could to cut spending, and for relying on higher revenues to reduce its budget deficit.
"We will continue with fiscal discipline and it will be a central element in our policies.. We will also make labour market reforms and reforms to enhance the investment environment a priority," Babacan said. The budget deficit for January through April stood at 3.068 billion lira compared with 15.8 billion for the same period last year.
Economists say that with Turkey's current account deficit now above 8 percent of GDP, from 6.7 percent in 2010, it cannot fall to the central bank alone to try and curb a domestic demand boom by raising banks' required reserve ratios and cooling lending, and the government must do more.
The government pledges structural reforms will help ease the chronic current account deficit, which has traditionally accompanied periods of high growth in Turkey. Finance Minister Simsek said he did not see the deficit becoming problematic. "The number of methods to fight the current account deficit in the short run is limited, but the government has done whatever can be done to fight it in the long term," he said. "Turkey's current account deficit will become manageable in the coming years, we can become a country that posts surplus in the long run."