World financial news

Turkey's economic growth accelerated to 6.6 percent in the first quarter from a six-year low in the previous three months as farming recovered from drought, exports boomed and consumer spending grew.

The growth rate rose from 3.4 percent in the fourth quarter, the state statistics office in Ankara said on its Web site today. The economy had been expected to expand by 5 percent, according to the median estimate of 15 economists surveyed by Bloomberg.

Manufacturing output, driven by record exports, helped sustain the 25th consecutive quarter of growth in the European Union membership candidate. The global credit crunch and a lawsuit to outlaw the ruling party, which has presided over the economic expansion, may constrain growth in the remainder of the year.

“It's a good figure but we don't think the rest of the year will be as strong as that,'' said Haluk Burumcekci, chief economist at Fortis Bank AS in Istanbul, who predicts 4.5 percent growth for the year. “As the year goes on, we will see the economy slowing as domestic demand falls.''

The agriculture sector expanded 5.6 percent, compared with a contraction of 6.9 percent in the first quarter of 2007 when low rainfall reduced the harvest in central Anatolia.

The benchmark ISE National 100 stock index gained as much as 0.6 percent after the figures were announced and was 0.97 percent lower at 35,483.0 at 11:30 a.m. in Istanbul. The lira strengthened to 1.2249 to the dollar from 1.2284 before the announcement.

European Demand

First-quarter exports jumped 44 percent from the same period of 2007 as European demand for Turkish-made goods such as cars and washing machines grew. Ford Otomotiv Sanayi AS, Ford Motor Co.'s Turkish joint venture that makes cars in western Turkey, said first-quarter profit more than doubled from a year earlier.

Industrial production expanded an average of 7.1 percent in the first quarter of the year and exports hit $11.4 billion in March, a record for a single month.

Domestic spending rose 7.1 percent. The central bank cut its benchmark overnight borrowing rate by a total of 2.25 percentage points to 15.25 percent between September and February before halting its reductions. It increased the rate by a total of 1 percentage point in May and June and may raise it again in July, the bank said on June 26.

`Political Uncertainty'

“Domestic demand was strong in the first quarter but the combination of tight monetary policy and political uncertainty will weigh on growth and pull it lower,'' said Inan Demir, economist at Finansbank AS in Istanbul. He expects 4.4 percent growth for 2008.

Official budget projections show Turkey is aiming for 5.5 percent growth this year, although a global credit squeeze is likely to curb the economy as Turkish banks often fund domestic lending by borrowing abroad. Gross domestic product, which was $659 billion in 2007, will probably increase 4 percent or 4.5 percent, Finance Minister Kemal Unakitan said on June 11.

A court case to outlaw the ruling Justice and Development Party may also lead to political instability, damping economic expansion by deterring investment. Consumer confidence has fallen to record lows since the case was launched in March.

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