Turkish c.bank says economic recovery to be slow

* Recovery in employment conditions to take long time

* Inflation seem remaining low

ISTANBUL, Nov 24 - Turkey's Central Bank expects the recovery in economic activity to be slow and gradual in the period ahead, with a lasting improvement in employment conditions seen taking a long time, it said on Tuesday.

The Turkish economy went into a deep recession in the first half, shrinking 10.5 percent, and is expected to contract 6 percent in the year as a whole with economic indicators yet to show significant signs of recovery.

The Central Bank said in its twice-yearly Financial Stability Report that continuing demand uncertainty and low capacity utilisation would continue to limit investment expenditure.

"Hence, it is expected that the recovery in economic activity in the period ahead will show a slow and gradual trend," the report said.

Underlying inflation indicators were expected to remain low, even if there are temporary rises due to base factors, it said.

Annual consumer price inflation stood at a 40-year low of 5.08 percent in October, compared with an official year-end target of 7.5 percent.

The Central Bank has cut its benchmark overnight borrowing rate by a total 10.25 percentage points since November last year in a bid to revive economic activity, which tumbled in line with global trends amid the financial crisis.

It has signalled that the rate-cutting cycle is approaching an end.

The report also said the development in the coming period of the country's current account deficit -- an economic weak point in recent years but sharply lower this year -- would depend on the rate of economic activity and energy prices.

Turkey imports the vast majority of its energy needs.

Regarding the banking sector, which has been spared the problems suffered by its peers in the West, the report said there was expected to be a gradual improvement in loans generally.

However, it would be difficult the sustain an improvement in banking profitability in 2010 after a rise in 2009 due to increases in net interest income and trading profits.

It added that due to measures taken by the bank and to positive developments in global risk perception there had been a relative improvement in liquidity conditions. ((daren.butler@reuters.com; +90 212 350 7057; Reuters Messaging: daren.butler.reuters.com@reuters.net))