by Xinhua writers Wang Xiuqiong, Zheng Jinfa
ANKARA, June 27 (Xinhua) -- Turkey has recently seen signs of a recovery from the global financial crisis while downward risks continue to put uncertainties on the emerging economy's comeback.
Hit by sagging exports and weakening domestic demands, Turkey's gross domestic production (GDP) contracted 6.2 percent in the last quarter of 2008 and saw the annual growth rate at 1.1 percent, after posting an average annual expansion of 6 percent.
Thanks to a series of fiscal measures, recent data releases point to a partial recovery in economic activity, said Turkey's central bank Friday.
Industrial production declined for the ninth consecutive month in April, but the pace slowed to 18.5 percent year-on-year compared with 20.9 percent in March, according to the Turkish Statistical Institute.
Also, private sector's capacity utilization rate rose by one percentage point in the second quarter from the first quarter in seasonally adjusted terms.
That indicated an end to the downward trend in production which began in the second quarter of 2008, said the central bank in a statement.
Meanwhile, consumer demand strengthened in the second quarter due to sales tax cuts aimed at boosting consumption and reviving the economy. The Consumer Confidence Index rallied 8 percent month-on-month in April and extended the increase in May with a 3.1-percent rise.
Last week, the government decided to continue to impose low sales taxes on automobiles, white goods and other products till the end of September, extending a three-month tax cut announced in March.
The U.S.-based financial advisor Merrill Lynch has predicted the Turkish economy to start growing by the third quarter of this year, relatively faster than other emerging economies such as Russia, Poland, Hungary and South Africa, the Turkish Today's Zaman (Time) reported last week.
However, the central bank said it remains to be seen whether a solid recovery is imminent as the positive signs were largely short-term effects of government stimulus measures.
The Turkish government has predicted the economy to shrink by 3.6 percent in 2009, while the International Monetary Fund (IMF) put the contraction forecast at 5.1 percent.
Some indicators are far from signaling a robust economic recovery, said the central bank.
Domestic investment demand for machinery and equipment is expected to slump further in the second quarter from a year earlier. Exports, which has remained flat since October 2008, was estimated to have nosedived about 40 percent year-on-year in May in U.S. dollar terms, said the bank.
Flagging investment and demand further drove up Turkey's chronically high jobless rate, as official survey put the rate at a record-high 16.1 percent in the first quarter, up 4.2 percentage points year on year.
The central bank said applications for unemployment benefits in April and May pointed to more non-farm job losses in the second quarter in seasonally adjusted terms, which could further dampen demand.
Another risk came from a widening budget deficit caused by revenue decline and expenditure rise.
In the first five months of 2009, the budget deficit surged to 20.7 billion lira (about 14 billion U.S. dollars) from 2.1 billion lira (about 1.42 billion U.S. dollars) a year earlier. The government has revised its full-year budget deficit target to 48.3billion lira (about 32.7 billion U.S. dollars) from 10.4 billion lira (about 7.04 billion U.S. dollars).
The central bank urged the government on Friday to commit to a credible medium-term fiscal framework that would underpin fiscal discipline and debt sustainability.
SEEKING WAYS OUT
To ease liquidity and shore up the economy, the central bank has slashed benchmark overnight rates, bringing the borrowing rate down to a historic low by 800 basis points since last November.
The country's annual inflation rate was down to a near 40-year low of 5.24 percent in May, offering space for interest rate reductions.
In the latest rate cut, the bank on June 16 reduced the borrowing rate to 8.75 percent from 9.25 percent and the lending rate to 11.25 percent from 11.75 percent.
In the Friday statement, the central bank said future rate cuts could be slowed or suspended should economic indicators point to a robust recovery.
However, it's necessary to "maintain an easing bias for a considerable period of time" due to the financial strain and its possible impact on the real economy, said the bank.
The central bank started to auction repos with maturities of three months on June 19, which added to the existing one-week repos, to ease liquidity squeeze that has continued since May 2008,the semi-official Anatolia news agency reported earlier.
Meanwhile, Turkey is in talks with the IMF for a three-year standby loan deal to replace a 10-billion-dollar pact that expired in May 2008. Whether an agreement will be reached is uncertain as the negotiations have been long delayed due to disagreements on fiscal policies.
With exports to traditional markets like Europe tumbling, Turkey saw opportunities in alternative markets such as Africa, with its sales to Africa up 30 percent in May when exports in general plummeted 40 percent year on year, Today's Zaman newspaper reported this week.