Turkish economy growth beats expectations

Economy grows by higher-than-expected 7.4 percent ahead of national election in two weeks, but economists warn of slowdown.

ANKARA - Turkey's economy grew by a higher-than-expected 7.4 percent in the first three months of 2018 compared to the same period last year, official statistics showed on Monday.

The figure, released just two weeks ahead of a national election, beat the consensus market forecast of 7.0 percent growth.

However economists warned of a future slowdown.

First quarter growth was driven by industry, construction and services as well as a rise in exports, official data published by the Turkish Statistics Institute (TUIK) showed.

The figure follows 11.3 percent and 7.3 percent growth in the third and fourth quarters of 2017.

President Recep Tayyip Erdogan welcomed the latest data, saying that Turkey "continued to be one of the fastest growing" economies.

He added on Twitter: "Despite the attacks on the economy and the games being played, we continue to grow strongly with strong macroeconomic fundamentals!"

Erdogan's government has repeatedly accused unnamed foreign powers of conspiring to weaken Turkey and its currency.

Turkey holds snap presidential and parliamentary elections on June 24, which would give Erdogan beefed up powers.

But economists including London-based Capital Economics pointed out that the latest data predates the recent financial market turmoil.

"An abrupt slowdown is on the cards over the coming quarters," Jason Tuvey, senior emerging markets economist at Capital Economics, said in a note.

The economy has been plagued by fears of overheating despite impressive growth, while inflation figures remained high at 12.15 percent in May with the current account deficit widening.

Noting that the Turkish central bank has hiked its interest rates by a cumulative 500 basis points in recent weeks, Tuvey warned that past experience shows tightening financial conditions "on the scale witnessed over recent months" tends to lead to a slowdown in annual economic growth.

The bank raised rates twice in two weeks after the lira hit record lows and for the first time ever tested the 5.0 ceiling by hitting 4.92 lira to the dollar on May 23.

The lira rallied after the rate hikes.

The Turkish currency was at 4.52 against the greenback after 0845 GMT on Monday, losing 1.2 percent.

Since the start of 2018, the lira has lost 19.7 percent of its value against the dollar.