Moody’s sees re­ces­sion pain for Turkey, Ar­gentina af­ter crises

The Daily Star (Lebanon) - - BUSINESS -

Turkey and Ar­gentina may have put their cur­rency crises be­hind them but a world of pain awaits their economies in the com­ing quar­ters, ac­cord­ing to Moody’s In­vestors Ser­vice.

De­clines in the lira and the peso, two of this year’s worst per­form­ers glob­ally, will trans­late into sharp eco­nomic con­trac­tions as growth de­cel­er­ates across ad­vanced and emerg­ing mar­kets, Moody’s said in a re­port Thurs­day.

With mone­tary tight­en­ing in ma­jor economies and trade dis­putes un­der­min­ing in­vest­ment around the world, Moody’s is tak­ing an in­creas­ingly dim view of the growth prospects of de­vel­op­ing na­tions such as Turkey and Ar­gentina, which “have rel­a­tively high ex­po­sures to ex­ter­nal fi­nanc­ing and are there­fore the most vul­ner­a­ble.”

Turkey’s econ­omy will prob­a­bly con­tract through the first half of next year as the lira’s slump and ris­ing bor­row­ing costs take their toll, the rat­ing com­pany said. Gross do­mes­tic prod­uct in Ar­gentina won’t re­turn to pos­i­tive growth un­til 2020 as a re­sult of the coun­try’s se­vere mone­tary and fis­cal con­sol­i­da­tion un­der an In­ter­na­tional Mone­tary Fund pro­gram, Moody’s said.

Turkey’s in­fla­tion is hov­er­ing near the fastest pace since Pres­i­dent Re­cep Tayyip Er­do­gan came to power 15 years ago, and high in­ter­est rates are cloud­ing the in­vest­ment out­look. De­spite re­coup­ing some losses, the lira is still down 30 per­cent for the year against the dol­lar.

“Dou­ble-digit in­fla­tion, a steep in­crease in bor­row­ing costs and cur­tailed bank lend­ing are likely to weigh on house­hold pur­chas­ing power, pri­vate con­sump­tion” and in­vest­ment, Moody’s said.

The IMF echoed Moody’s warn­ing, pre­dict­ing that Turk­ish eco­nomic growth will slip to 0.4 per­cent in 2019 from 3.5 per­cent this year. “The weaker lira, higher bor­row­ing costs and el­e­vated un­cer­tain­ties weigh on in­vest­ment and de­mand,” the fund said in a re­port pub­lished Thurs­day.

Moody’s sees Turkey’s econ­omy grow­ing 1.5 per­cent in 2018 and con­tract­ing 2 per­cent the fol­low­ing year. It pre­dicts Ar­gentina’s GDP will shrink 2.5 per­cent this year and 1.5 per­cent in 2019.

Turkey also has to con­tend with el­e­vated in­fla­tion de­spite the wors­en­ing out­look for its econ­omy.

Moody’s ex­pects Turk­ish price growth, which ac­cel­er­ated to an an­nual 25.2 per­cent in Oc­to­ber, to re­main in dou­ble dig­its through 2020 be­cause of unan­chored in­fla­tion ex­pec­ta­tions, spurred by pres­sure from the ex­change rate and oil.

In Ar­gentina, in­fla­tion ex­pec­ta­tions will keep ris­ing de­spite the cen­tral bank’s very tight stance, Moody’s said, adding it will take some time be­fore the ben­e­fits of mone­tary poli­cies fully ma­te­ri­al­ize. It ex­pects in­fla­tion to grad­u­ally fall to 20 per­cent by the end of 2020. – Bloomberg News

De­spite re­coup­ing some losses, the lira is still down 30 per­cent for the year against the dol­lar.

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