UPDATE 2-Turkey trims growth outlook as elections loom

* Growth seen at 3.2 pct this year, 4 pct next

* Outlook seen as prudent by analysts

* Progress seen on c/a deficit

(Adds analyst comments, details)

By Ozge Ozbilgin

ANKARA, Oct 9 (Reuters) - Turkey cut its growth forecastsfor this year and next on Tuesday and said budget deficits wouldbe wider than previously thought, falling largely into line withindependent economists as it moves into an election cycle.

Announcing the government's medium-term programme for2012-2015, Deputy Prime Minister Ali Babacan said the economywas expected to grow 3.2 percent this year, below a previousforecast of 4 percent. Next year's growth was seen at 4 percent,down from a previous forecast of 5 percent.

Turkey was Europe's fast-growing economy last year, withgrowth of 8.5 percent, but weaker domestic demand has taken itstoll this year despite strong exports, and policy makers havebeen trying to steer the economy softly back to earth.

The medium-term framework suggested that Prime MinisterTayyip Erdogan, who has said he would like to see real interestrates of zero percent to stimulate growth, had ultimately sidedwith some of the government's more cautious technocrats.

Erdogan, who has overseen a near tripling of per capita GDPin Turkey during almost a decade in power, has made stronggrowth a priority and is keen to maintain that reputation aselections loom.

"This programme covers the next three years when Turkeyfaces local, presidential and parliamentary elections, plus alikely referendum on constitutional reform," said Timothy Ash,head of emerging markets research at Standard Bank.

"In my mind, given the backdrop of elections, this lookslike a prudent and very credible set of targets," he said.

The budget deficit was expected to come in at 2.3 percent ofGDP this year, above the government's original 1.5 percenttarget, and to decrease only marginally next year.

For table of forecasts, click

"It appears that budget balances will remain relativelyexpansionary compared to previous forecasts," said Ozgur Altug,an economist at Istanbul-based BGC Partners.

"Considering the three elections in the next three years, wethink that the new forecasts appear more realistic. Besides,they are still below the related Maastricht criterion of 3percent," he said.

The government has announced a range of measures to try toboost revenues in recent weeks including tax hikes on cars, fueland alcohol after disappointing privatisation receipts andincreased infrastructure spending hurt public finances.


Tighter monetary policy in the last quarter of 2011 and thestart of 2012 have helped bring down Turkey's high currentaccount deficit and inflation without driving it into a deepereconomic downturn.

The central bank, which cut its overnight lending rate forthe first time in seven months at its last monthly policymeeting in September, is now trying to cushion the slowdown ineconomic growth by stimulating domestic demand.

Governor Erdem Basci said last month that he was "slowlyloosening the brakes" but was cautious about easing policy toofar and widening the current account deficit.

The medium-term programme forecast growth would pick upagain next year and accelerate to 5 percent in 2014 and beyond.

"In the last quarter of this year we foresee thecontribution of exports to growth declining in relative termsand domestic demand gathering strength," Babacan told a newsconference in Ankara.

Exports were seen growing to $187.1 billion by 2015 from$149.5 billion this year, Babacan said, continuing a growthtrend which has been fuelled by firms' diversification into newMiddle Eastern and African markets to offset weaker demand inthe European Union, Turkey's largest trading partner.

The International Monetary Fund (IMF) said on Monday thatTurkey was on track to return to its long-term growth path butwarned its wide current account deficit left it vulnerable tovolatile foreign capital flows.

Babacan said efforts to trim the current account deficit -expected to come in at 7.3 percent of GDP this year - would payoff, with it falling gradually to 6.5 percent by 2015.

He also gave an optimistic outlook for inflation from nextyear onwards, forecasting it would fall to 5.3 percent in 2013and 5.0 percent thereafter, down from an anticipated 7.4 percentthis year.

"The medium-term economic programme is offering a consistentmacro framework, but we think especially for the end of 2013 5.3percent inflation is pretty optimistic," said Gizem OztokAltinsac, an economist at Garanti Securities.

(Additional reporting by Daren Butler and Seda Sezer inIstanbul; Writing by Nick Tattersall; editing by Patrick Graham)

((seda.sezer@thomsonreuters.com)(+90 212 350 7051)(ReutersMessaging: seda.sezer@thomsonreuters.com))


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