News Column

Moody's estimates Turkey growth between 2.5-3.5 percent

August 11, 2014

Ratings agency points to suppressing effects of interest rates and high inflation in emerging economies.


Moody's rating agency has estimated Turkey's growth performance at 2.5-3.5 percent, below the government's four percent medium-term economic targets, citing the suppressing effects of interest rates and high inflation in emerging economies.

In its Credit Outlook report published on Monday Moody's said that growth estimations for some emerging economies have been revised in relation to interest rate rises introduced by central banks to cope with increasing inflation and that this would suppress growth outlook.

Moody's research suggests that high inflation, high interest rates and a slowdown in exports may suppress the growth outlook of emerging economies for this and next year but developed economies – fueled by investments – are expected to grow significantly in 2015.

As one of emerging economies Turkey's growth in the report was estimated to hover between 2.5-3.5 percent this year and 2015.

However, Turkish economic officials have repeatedly expressed optimism in four percent growth as a medium-term economic target and their commitment to achieve this goal.

Speaking in July, Turkey's Deputy Prime Minister Ali Babacan said: "If we do not see a substantially negative development in exports, a four percent growth target is achievable."

Demand in China, one of the major export markets for many emerging economies, could be weak for a time and inflation levels in emerging economies can be relatively high during the forthcoming period, Moody's also warned.

The agency's report indicates that the global economy could lag behind average performance this year, stressing that a recovery may only start from next year while the G-20 major economies are expected to grow by 2.8 percent on average this year and then speed up to 3.2 percent in 2015.

Political risk still high in Turkey: Fitch

The outright victory of Turkish Prime Minister Recep Tayyip Erdogan as president in Sunday's vote does little to ameliorate the political risk to Turkey's sovereign credit profile, Fitch Ratings said in a statement Monday.

Erdogan was elected Sunday after securing 51.96 percent of the vote in the first round of Turkey's first popular presidential election, according to unofficial counts. Without giving the exact numbers, the Supreme Election Board confirmed late Sunday that Erdogan had won outright, making a scheduled August 24 run-off election unnecessary.

The victory consolidates Erdogan's hold on power after a 12-year tenure as prime minister. Erdogan will succeed Abdullah Gul to the presidency on August 28. He will be Turkey's head of state for the next 5 years.

"The outcome avoids a second ballot and confirms Erdogan's personal standing with a large part of the electorate. But political risk will weigh on Turkey's ratings through its potential effects to discourage capital inflows and reduce policy predictability," the global credit rating agency said in a statement on its website.

Fitch said that after Erdogan's victory, political continuity does not eliminate political and social unrest. "Turkey has been remarkably resilient to recent external shocks and banks and corporates continue to enjoy high roll-over rates, but we expect political risk to remain a credit weakness that could lead to a negative rating action if it adversely affects government effectiveness and policy predictability," it said.

Fitch warned that Erdogan's "pressure" on the Turkish Central Bank to cut interest rates further could "undermine" the bank's tenuous credibility following sharp rate hikes in January, adding, "A rapid unwinding of these hikes would make Turkey more vulnerable to a sudden change in investor sentiment towards emerging markets."

Erdogan and other government officials have criticized the central bank for maintaining high interest rates, which are possibly limiting economic growth.

"Turkey is no longer a country that gets directives of certain people to set its economic policies," Erdogan said. "A Turkey that breaks its chains disturbs some domestic and international power elites."

Fitch also said that macroeconomic outcomes in 2014 have been broadly positive for Turkey's credit profile with the lira stabilising and international reserves rebounding. Export growth has been strong, the current account deficit has corrected and credit growth has slowed, in both cases more quickly than expected," Fitch added.

Turkey's exports increased by 7.3 percent to $80 billion in the first half of 2014 while imports were at $105 billion in the first five months of the year, according to TurkStat, the country's statistics authority.

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Source: Anadolu Agency (Turkey)

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