By Emre Peker And Yeliz Candemir
ISTANBUL--Turkey's economy expanded by less than 3% in 2014,
missing official targets and settling into a pattern of tepid
growth just as the government tries to prevent further weakness
before critical June general elections.
Gross domestic product grew by 2.9% on the year to 1.75 trillion
liras--or $800 billion at current prices--in 2014, down from 4.2%
in 2013, the state-statistics agency said Tuesday.
While the expansion beat a 2.7% forecast in a Wall Street
Journal survey, it fell short of the government's 3.3% goal and GDP
in dollar terms shrunk 2.8% as the lira slumped 9% against the
greenback in 2014. Economic growth was driven mainly by exports,
while private investment remained flat near zero for a second
consecutive year, according to official data.
"We forecast that growth will accelerate in the second half of
this year as both political and financial visibility increases,"
Finance Minister Mehmet Simsek said in a statement, defending
Turkey's performance and saying the country still outpaced its
emerging market peers--forecast to grow about 2.7% in 2014. The
government expects 4% GDP growth this year, compared with analyst
forecasts of about 3%.
The Turkish lira continued its slide against the dollar after
the GDP data, weakening 0.25% for the day to 2.61 per greenback,
slightly below its 2.65 record low in mid-March. The benchmark
BIST-100 stock index shed about 1.7% while two-year government bond
yields were flat at 8.77%.
Buffeted by wars in Syria and Iraq across its southern border,
weak demand from the European Union that buys almost half of
Turkey's annual exports, and financial volatility as investors
await U.S. Federal Reserve interest-rate increases later this year,
the government has been struggling to rebalance the economy and
achieve its targeted 5% annual growth.
Turkey's economy was also hit by a war of words between
President Recep Tayyip Erdogan and the central bank over monetary
policy, as government officials pressed for lower interest rates to
boost growth. The conflict exacerbated a lira selloff, curbing
domestic demand in the first quarter of 2015 and threatening an
effort to reduce inflation toward the 5% official target from 7.55%
as of February.
"Growth remains stagnant at best," said Selim Cakir and Emre
Tekmen of Turk Ekonomi Bank AS, an Istanbul-based unit of BNP
Paribas. "Slow economic growth in Turkey's main trading partners,
lira weakness, and political interference are taking a toll on
investment and consumption."
At stake is Mr. Erdogan's pledge to build a $2 trillion economy
that joins the world's top-10 in less than a decade. Campaigning
for a supermajority for his party in the June 7 elections, Mr.
Erdogan is promising to boost annual income per person to $25,000
from $10,000--a long shot given current growth levels.
A landslide victory in June would enable Mr. Erdogan's deputies
to single-handedly write a new constitution and hand him broad
executive powers. Citing a 12-year track record as prime minister,
when Turkey's GDP more than tripled, Mr. Erdogan now seeks to
transform the country's parliamentary governance to a U.S.-style
presidency, which he says will help him run the nation more
effectively, like a corporation.
"If we're going to make Turkey one of the 10 most advanced
countries in the world, we need to talk about these, and bring them
to life. Turkey paid the price for multi-headedness many times,"
Mr. Erdogan said. "Turkey would be much more advanced if it was
governed by a presidential system."
Turkey's average annual economic growth has slowed to about 3%
in the last three years from an average 5% since the governing
Justice and Development Party, or AKP, came to power in 2002.
While Mr. Erdogan's earlier years were marked by economic
reforms and privatizations that drove investment, credit-fueled
consumer spending has characterized growth since the U.S. Federal
Reserve and other major central banks flooded markets with cash to
fight the global financial crisis that erupted in 2008.
As Turkey grapples with dwindling capital inflows amid Fed plans
to resume orthodox monetary policies, the government is poised to
pressure the central bank once again to reduce interest rates to
help economic growth, analysts say. That is having a negative
impact on the lira, driven by concerns that a premature easing
cycle will derail Turkey's push to cut inflation.
"Rising growth concerns...will probably revive demands for lower
interest rates," said Ilker Domac and Gulktekin Isiklar, Citigroup
Inc. economists in Istanbul. "We remain concerned about the
negative repercussions of further monetary policy easing."
Write to Emre Peker at emre.peker@wsj.com and Yeliz Candemir at
yeliz.candemir@wsj.com
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