May 30 2018

Turkish growth forecast almost halved at Moody's

Turkey's economy is expected to grow 2.5 percent this year, ratings agency Moody’s said, as it slashed its forecasts for the country.

Moody’s lowered its estimate from 4 percent, citing the country’s over-reliance on short-term external funding and the worsening global backdrop as the U.S. Federal Reserve raises interest rates. That “has increased susceptibility to rising global interest rates and currency depreciation”, Moody’s said in a statement.

“Foreign currency exposure of the banking sector as well as the corporate sector’s presents additional financial stability risks,” the ratings agency said.

Growth in 2019 is expected to be 2 percent compared with a previous prediction of 3.5 percent, Moody's said.

Turkey’s lira slumped to a record low against the dollar in May, prompting the central bank to raise interest rates by 300 basis points to 16.5 percent at an emergency meeting. Foreign investment in Turkey has shrunk since a failed military coup in July 2016 and as President Recep Tayyip Erdoğan strengthened his grip on political and economic decision-making.

The economy grew more than 7 percent last year after a raft of stimulus measures by the government that raised concern for overheating and a hard landing. The outlook for Turkey has also been clouded by snap elections on June 24 and Erdoğan’s plans to introduce a full presidential system of government, approved in a nationwide referendum last year that was marred by allegations of vote-rigging.