VZCZCXRO1324
RR RUEHDA
DE RUEHAK #1639 2560813
ZNR UUUUU ZZH
R 120813Z SEP 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 7447
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHIT/AMCONSUL ISTANBUL 4733
RUEHDA/AMCONSUL ADANA 3226
RUEHBS/USEU BRUSSELS

UNCLAS ANKARA 001639 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON TU
SUBJECT:  TURKISH GDP GROWTH SLOWED SHARPLY IN SECOND QUARTER 
 
¶1. Summary:  TurkStat data released on September 10 showed Turkey's 
GDP grew only 1.9% (YOY) in the second quarter, far below market 
forecasts of 3.7% and down sharply from 6.7% growth in the first 
quarter.  While first half growth was still a respectable 4.2%, the 
sharp slowdown from quarter to quarter has some market analysts 
already lowering their 2008 forecasts to 3.0%.  The data showed a 
broad-based slowdown in domestic demand and investment, in both the 
public and private sectors.  Markets reacted negatively, with 
Turkish equities falling about 5% on September 10 and 11, and the 
Turkish lira depreciating about 3% against the dollar.  This data 
will add to public pressure on the GOT to move forward on its 
economic agenda, but two of the key factors affecting growth for the 
rest of year are outside of Turkey's control: the extent of the 
slowdown in the Eurozone and the UK (Turkey's major export markets), 
and whether foreign banks reduce their FX lending to Turkish 
companies.   End Summary 
 
¶2. The Turkish economy grew just 1.9% (YOY) in the second quarter, 
the slowest rate of expansion since 2002, and significantly below 
the 3.7% consensus market forecast. This is a marked deceleration 
from growth in the first quarter, when GDP grew 6.7% (YOY).  While 
GDP growth in the first half was still a respectable 4.2% YOY, the 
sharp quarter-on-quarter slowdown has forced investors and 
businesses to review and, in some cases, revise downward their 2008 
growth projections, which were at 4.0% before this data was 
released.  Some analysts already have dropped their forecasts to 
3.0%, while those who are sticking to 4.0% say they see downside 
risks, particularly from the economic slowdown in the European 
Union. 
 
¶3. Market reaction was sharply negative following the data release 
on September 10.  Turkish equity markets fell over 5% on September 
10 and 11, while the Turkish lira depreciated about 3.0% against the 
dollar (the lira also was driven down by negative global 
developments). 
 
¶4. The TurkStat data showed across the board weakness in domestic 
demand.  Investment growth decreased 6.8% from the first quarter, 
while household demand decreased 2.1% and the agriculture sector was 
down 3.5%.  Cuts in non-interest government expenditures resulted in 
a 3.7% contraction in consumption in the second quarter, and a 16.8% 
drop in public sector investment expenditures. 
¶5. The data also showed that private sector has scaled back 
investment and consumption. Growth in consumption expenditures 
dropped from 7.6% in the first quarter to 2.8%, while investment 
expenditure growth fell from 14% to just 0.6%. Industrial output 
growth of 2.8% YOY was the slowest pace of manufacturing growth 
since 2002. 
 
¶6. Faik Oztrak, a former Treasury undersecretary and now a CHP 
deputy, invited the GOT to take immediate measures to avoid a 
possible recession and given Turkey's high borrowing needs. Tanil 
Kucuk, president of the Istanbul Chamber of Industry, urged the GOT 
to announce an action plan combined with a new economic program. 
Nurattin Ozdemir, President of the Ankara Chamber of Industry said 
companies are in a difficult situation due to lack of domestic 
demand.  Ercan Kumcu, a former Central Bank vice-governor and now a 
daily columnist, noted that the GDP slowdown is hard to explain 
given other recent economic data, especially trade data (exports 
rose 41% in July). 
 
¶7. Comment: While this data will add to public pressure on the GOT 
to move forward on its economic agenda, two of the key factors 
affecting growth for the rest of year are outside of Turkey's 
control: the extent of the slowdown in the Eurozone and the UK 
(Turkey's major export markets), and whether foreign banks, 
particularly in Europe, reduce their FX lending to Turkish 
companies, which has been a popular source of low-interest finance. 
 
 
WILSON