Turkey considers new stimulus as growth seen slowing, officials say

ANKARA-Reuters

President Recep Tayyip Erdoğan’s government is considering further stimulus measures to address an expected slowdown in growth in coming quarters, two officials said - a move that could raise expectations that fiscal policy will be loosened.

The economy expanded at a breakneck 7.4 percent last year, boosted by government stimulus and domestic consumption, although analysts said growth was uneven and not sustainable.

In the aftermath of a failed coup in 2016, the government boosted the size of a fund that backs loans to companies to 250 billion liras ($52 billion). It has also introduced measures to increase employment.

“Certain steps may be taken to realize higher growth. This issue is on the agenda,” one of the officials said, without elaborating on what that could entail.

The officials said the steps were being considered because they now expect a contraction of the economy in the third quarter and full-year growth of around four percent - short of the government’s 5.5 percent target in its medium-term program.

The officials declined to be identified because of the sensitivity of the issue. No one was immediately available for comment at the treasury and finance ministry.

Even as the economy has kept growing - in the third quarter of last year it expanded at a blistering 11.3 percent - economists are concerned Erdoğan is focused on expansion at seemingly any cost. While investors have long admired Turkey’s budget discipline, that perception may be starting to change.

“The government’s reputation for fiscal prudence is coming under increasing scrutiny,” said Jason Tuvey of Capital Economics in a note to clients this week.

“Looser fiscal policy would exacerbate the vulnerabilities that have accumulated in Turkey’s economy in recent years,” Tuvey said, citing the wide current account deficit.

A Reuters poll of 55 economists last week forecast 2018 annual growth at 4.1 percent and 2019 growth at 3.5 percent.

The economy grew at 7.4 percent in the first quarter of this year. The officials said second-quarter growth was seen at slightly more than six percent.

The third quarter would see a contraction, partly due to the base effect given last year’s 11.3 percent growth, they said.