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INTERVIEW-Turkish vote may affect growth outlook -finance minister

Source: Reuters - Tue, 25 Mar 2014 13:23 GMT
Author: Reuters
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* Ruling party support below 40 pct could heighten uncertainty

* Vote key test for government after graft scandal, protests

* Finance Minister sees 2013 economic growth around 4 pct (Adds analyst comment)

By Orhan Coskun

BATMAN, Turkey, March 25 (Reuters) - Turkey may lower its growth forecast for this year if local elections on Sunday heighten uncertainty before a presidential race in August, Finance Minister Mehmet Simsek said in an interview.

The elections are the first big test of Prime Minister Tayyip Erdogan and his AK Party's popularity since protests last summer and a corruption scandal that erupted in December. They are widely seen as a referendum on his rule and may dictate whether he runs for president in August or stays on for a fourth term as prime minister.

If the AK Party polls below the 40 percent of the vote it got in the last local elections, in 2009, heightened uncertainty about the presidential vote may prompt a cut in the government's 4 percent growth target for 2014, said Simsek, himself a member of the AK Party.

"If the result of next weekend is that political stability is not under threat, that is if there is support of more than 40 percent (for the AKP), then the uncertainty related to the presidential election will be limited," Simsek told Reuters in the southeastern city of Batman.

Investors agree the elections will be a test of how well the party and Erdogan have weathered one of the greatest challenges of his time in office, after dominating Turkish politics for more than a decade and overseeing a period of unprecedented economic growth.

"Local elections at the weekend will be absolutely key to easing market concerns over domestic political stability," said Timothy Ash, head of emerging markets strategy at Standard Bank in London.

Turkey's economy was "less fragile than it appeared from abroad", Simsek said. But "if a perception emerges from the elections that there is a threat to stability, the downward risks to growth will increase and there could be a revision (to the target)," he said.

Markets may rally if Erdogan's results beat expectations and the AKP does well, Standard Bank's Ash said in a note to clients. That would mean "retaining Ankara/Istanbul, and polling above 40 percent ... Less than 40 percent, and there may well be uncertainty."

CONFIDENCE KNOCKED

The corruption scandal, which began with the arrest of three ministers' sons and businessmen close to Erdogan, has undermined confidence, helping to send the lira to record lows and leading to a hike in interest rates in January to defend the currency.

Turkey's consumer confidence index tumbled to a four-year low in February. But industrial production appears to have held up, with output rising 7.3 percent year-on-year in January.

Data on Tuesday showed the number of foreign visitors to Turkey rose 6.6 percent in February, in a boost for tourism, a crucial source of foreign currency.

Simsek said he expected economic growth last year, which is due to be announced on March 31, to be around 4 percent.

He also saw no need to revise current budget targets, adding that he expected budget improvements to continue. The central government's budget-deficit-to-gross-domestic-product ratio is seen at 1.9 percent this year, the minister said.

Ratings agency Moody's said in a report on Tuesday that political turbulence and market volatility was heightening Turkey's external vulnerability but that fiscal policy was expected to absorb some of the shocks to the economy.

Turkish assets were steady on Tuesday. The lira was flat at 2.2360 against the dollar and the main share index 0.43 percent higher. The 10-year benchmark bond yield fell to 11.29 percent from 11.36 percent. (Writing by Daren Butler; Editing by Nick Tattersall and Hugh Lawson, Larry King)

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