ISTANBUL—Turkey’s rate of economic growth slowed sharply to 2.2% in 2012, the Turkish statistics agency said, as weak domestic demand and spillover from the European debt crisis took its toll after two years of rapid expansion that rivaled China.
Turkish Economy Minister Zafer Caglayan delivers a speech in Madrid on Nov. 27, 2012.
According to official figures issued Monday, Turkey’s gross domestic product expanded just 1.4% in the fourth quarter—almost half the consensus forecast of 2.7% and the lowest rate since 2009, when Turkey experienced shock from the market free fall following the collapse of Lehman Brothers.
The steep drop in economic activity was largely engineered by Turkey’s central bank, which dramatically tightened policy after Turkey’s breakneck expansion averaging 9% in 2010-2011 spurred investor fears that the economy was overheating.
Some ministers in Turkey’s government, however, have accused central bank Gov. Erdem Basci of grinding domestic demand to a halt and choking growth with a policy out of step with global risk appetite. Economy Minister Zafer Caglayan, Turkey’s most vocal advocate of loose policy to spur growth, used Monday’s figures to take another swipe at the central bank.
“Unfortunately, one part of growth was missing. I believe that domestic demand needs to support growth as much as external demand… This growth figure shows that we stepped on the brakes too much,” he said.
Markets shrugged off the worse-than-expected data, with stock investors pushing the Istanbul Stock Exchange 100 Index up 0.25% at around midday in Europe, while the lira was steady against the dollar and trading at TRY1.8059 against the dollar.
Before Monday’s figures, economists and the government were forecasting that the central bank’s move toward an easing bias in recent months could help Turkey double its economic growth this year, driven by surging consumer lending and robust exports.
But analysts said Monday’s news cast doubts on the pace of the recovery in 2013. “The lagging effects of the central bank’s tight monetary policy throughout late 2011 and the first half of 2012, coupled with global uncertainties, created a deeper-than-desired slowdown in the growth rate,” said Nilufer Sezgin, chief economist for Erste Securities in Istanbul. “A disappointing recovery performance in 2013 despite the monetary easing implemented since June 2012 could be a bigger concern…The pace of recovery is not strong, casting doubts on the 2013 GDP growth performance.”
Turkish officials sought to put a positive spin on the data, contrasting Turkey’s 2012 expansion as a success given the global economic slowdown, deepening euro-zone crisis, geopolitical tensions and high oil prices. Finance Minister Mehmet Simsek said Turkey’s economy will comfortably reach the government’s 4% growth target this year on the back of flexible monetary policies and a recovery in domestic demand.
The data contained some bright spots, magnifying how growth had shifted from domestic demand to exports. The contribution of exports to GDP rose sharply by 4.1% in 2012 from minus-1.1% the previous year, even as domestic private consumption contracted 0.8% in the fourth quarter of last year compared with a 3.3% increase in the same period of 2011.
Recent weeks have seen a sharp rise in consumer lending, a driver of credit expansion and domestic demand, which has surged to a one-year high of 25% as of March 22 from 16.5% at end of last year, according to central bank data.
Monday’s weak growth numbers should keep the bank on an easing path, despite that rapid rise, economists said.
“Inflows from abroad are slowing down and we know that economic growth isn’t yet accelerating as quickly as desired,” said Gizem Oztok Altinsac, an economist at Garanti Securities GARAN.IS -1.24% in Istanbul. “It is possible that we will encounter an environment that initially allows for a more rapid pace of credit growth.”