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Dec 06 2018

Fitch halves Turkey growth estimate on credit, demand slowdown

Ratings agency Fitch revised down its estimate for Turkey’s economic growth, citing a large drop in the availability of loans  and a slump in domestic demand.

The economy is expected to grow 0.6 percent in 2019, Fitch said in a report late on Wednesday. Its previous estimate was 1.2 percent.

“Credit availability has dropped sharply and firms are reporting delays in collecting receivables as tighter financing conditions bite,” Fitch said in an e-mailed report.

Fitch is joining other International financial institutions in predicting a big slowdown in economic activity in Turkey next year after the lira lost almost a third of its value against the dollar, pushing up inflation and interest rates, and leading to a slump in demand for imports. Moody’s and the Organisation for Economic Co-operation and Development (OECD) are forecasting an economic contraction in 2019.

Tighter fiscal policy will also constitute a head wind to growth, particularly after local elections in March, the ratings agency said.

Fitch said inflation in Turkey, which has surged this year due to an overheating economy and the currency crisis, will probably be 25 percent this year and 17 percent in 2019. Annual inflation was 22.6 percent in November.

Consequently, the country’s central bank, which hiked interest rates by 625 basis points to 24 percent in September to defend the lira and cap inflation, is not expected to lower rates until late next year, Fitch said.

“A premature loosening of domestic policy settings could lead to renewed market pressure on the currency,” Fitch said. 

The ratings agency said it expected exports to provide the main support to economic growth “though the requirement for imported inputs and the structure of supply contracts will neutralise some of these benefits,” it said.