Cit­ing Q2 growth data, Fitch plans to re-eval­u­ate Turkey’s eco­nomic out­look

In­di­cat­ing that Turkey grew rel­a­tively strong in the third quar­ter of this year com­pared to other coun­tries, the U.S.-based credit rat­ing agency Fitch Rat­ings an­nounced Friday it will re-eval­u­ate the coun­try’s eco­nomic out­look

Daily Sabah (Turkey) - - Money -

THE U.S. based in­ter­na­tional credit rat­ing agency Fitch has stated that it will re­vise its eval­u­a­tion of Turkey’s eco­nomic out­look and growth es­ti­mates, cit­ing the re­cently an­nounced growth data of the third quar­ter, which in­cludes changes from a num­ber of in­ter­na­tional fi­nance in­sti­tu­tions that have re­vised up their fore­casts.

Paul Gam­ble, the head of Emerg­ing Europe in Fitch’s Sov­er­eign Rat­ings Group, said they re­gard Turkey’s growth as rel­a­tively strong com­pared to other coun­tries at sim­i­lar lev­els, stress­ing that Turkey’s 5.1 per­cent growth in the sec­ond quar­ter was stronger than ex­pected. “In the com­ing weeks, we will re-eval­u­ate our key global fore­casts. We will also look at Turkey in light of its strong per­for­mance,” Gam­ble added.

Not­ing that some of the eval­u­a­tive mea­sures in­clude fi­nan­cial in­cen­tives through the Credit Guar­an­tee Fund, Gam­ble stated that Turkey’s third-quar­ter growth is ex­pected to be strong, adding that Turkey con­tin­ues to ben­e­fit from im­prov­ing ex­ter­nal con­di­tions. “We see that the Euro­zone is clearly hav­ing an im­pact on its growth. That’s why third-quar­ter growth will be strong. Ac­tu­ally, we are also look­ing be­yond the third quar­ter,” he said, not­ing, “Be­cause many of the in­cen­tives ap­plied are lim­ited in time. We can see that the right in­cen­tives will start to loosen by the end of the year.”

Gam­ble said that some slow­down in the econ­omy is ex­pected be­gin­ning next year, sug­gest­ing that the group re­gards Turkey’s growth as rel­a­tively strong com­pared to other coun­tries at sim­i­lar lev­els, adding that they ex­pect the econ­omy to grow by 4.7 per­cent at the end of this year and by 4.1 per­cent next year.

Re­gard­ing the fact that many in­ter­na­tional fi­nan­cial in­sti­tu­tions re­cently re­vised up Turkey’s growth fore­casts, Gam­ble said, “We in­creased our growth forecast com­pre­hen­sively for Turkey in June. We re­vised up Turkey’s growth forecast for this year, from 2.4 per­cent to 4.7 per­cent. The data is stronger than we ex­pected. In the com­ing weeks, we will re-eval­u­ate our key global fore­casts. We will also look at Turkey in the light of its strong per­for­mance.”

The agency cited a po­ten­tially smoother po­lit­i­cal en­vi­ron­ment, with the com­ple­tion of the April 16 ref­er­en­dum and the next elec­tions not due un­til Novem­ber 2019, which should sup­port a strength­en­ing of in­vest­ment and con­sump­tion through mid-2019 in its re­vi­sion re­port.


Eval­u­at­ing Turkey’s growth per­for­mance, Gam­ble said the coun­try seems to be show­ing re­sis­tance against growth. “In terms of its ex­ter­nal po­si­tion, we saw pres­sure on the lo­cal cur­rency af­ter the coup at­tempt and in the fi­nal quar­ter of last year. We ob­served a change in global in­vest­ment per­cep­tion,” Gam­ble said, adding that in turn, the Cen­tral Bank of the Repub­lic of Turkey (CBRT) turned to mon­e­tary tight­en­ing and peo­ple be­gan to feel more com- fort­able in terms of macroe­co­nomic is­sues and the po­lit­i­cal en­vi­ron­ment. “Be­sides, in­vestors’ per­spec­tives have turned to Turkey. The lat­ter has shown clear re­sis­tance,” he added.

Gam­ble sug­gested that Turkey’s ex­ter­nal sen­si­tiv­i­ties can be tested once more pro­vided that global fi­nanc­ing con­di­tions change and global in­ter­est rates in­crease, un­der­lin­ing that Turkey’s ex­ter­nal fi­nanc­ing needs are high.

He pointed out that the risks for the com­ing pe­riod are more about ex­ter­nal sen­si­tiv­i­ties. “The other risk and op­por­tu­nity is the rapid growth and re­cov­ery of the euro­zone. We con­tin­u­ously raised the euro­zone growth fore­casts in the last pe­riod,” Gam­ble said. “Europe is clearly Turkey’s main trad­ing part­ner and in­vestor. The fact that cur­rent po­lit­i­cal tur­moil cre­ates a gap be­tween Turkey and the EU can pose a risk fac­tor.”


Gam­ble noted that in­fla­tion in Turkey is high com­pared to de­vel­op­ing economies and other coun­tries in its own rat­ing group, in­form­ing that both head­line and core in­fla­tion rates are now in the dou­ble dig­its. “We think that this is largely a re­flec­tion of the de­pre­ci­a­tion of the lo­cal cur­rency. We think that in­fla­tion in Turkey will de­crease as of the end of this year,” he as­serted. “We ex­pect a more sta­ble ap­pear­ance to come at the ex­change rate level. In­fla­tion may fall be­low 8 per­cent by the end of next year.”

Gam­ble said a slight de­te­ri­o­ra­tion is ob­served in the cur­rent ac­count deficit, which is mainly due to changes in com­mod­ity prices, in­di­cat­ing that the cur­rent ac­count deficit is ex­pected to in­crease from 3.8 per­cent in 2016 to 4.4 per­cent at the end of this year. “But, this is not a sig­nif­i­cant in­crease. We think that Turk­ish ex­porters will show re­sis­tance. Ex­porters in Turkey have adapted to mar­ket con­di­tions and an­other sup­port­ive fac­tor is the ris­ing tourism sec­tor,” he noted.

Re­fer­ring to the like­li­hood of re-eval­u­at­ing Turkey in terms of in­vestable rat­ings, Gam­ble said the time frame is im­por­tant, re­call­ing that they re­cently looked at how long it takes an av­er­age coun­try to re­gain its in­vestable rat­ing af­ter los­ing it. “This takes a lit­tle un­der six years. Of course, there were times when it has been done more quickly. For ex­am­ple, Hun­gary re­gained its in­vestable rat­ing in four years. The fastest was Ice­land which re­gained its in­vestable rat­ing in only two years,” Gam­ble said. “At this mo­ment, we eval­u­ate Turkey with a sta­ble out­look. This means that the prob­a­bil­ity of down­ward or up­ward move­ment of the rat­ing over the next two years is less than 50 per­cent.” Mean­while, Fitch Rat­ings af­firmed Turkey’s credit rat­ing at “BB+” and said its eco­nomic out­look re­mained sta­ble in late July.

An ex­te­rior view of the of­fices of Fitch Rat­ings in New York.

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