Fitch will make its key global forecast in the next couple of weeks and assess Turkey in light of its strong performance, Paul Gamble, Fitch Ratings’ head of emerging Europe (EME) sovereign ratings, said on Friday.
“The second quarter [growth] number was very good and it actually followed a very good first quarter,” Gamble said.
Turkey’s economy grew 5.2 percent in the first quarter of this year and 5.1 percent in the second, compared with the same periods of 2016, according to the Turkish Statistical Institute (TurkStat).
Gamble stated that Turkey’s growth performance is derived from fiscal stimulus and the credit guarantee fund along with improved external conditions such as growth in the eurozone.
“For us, third quarter growth is also going to be strong. These factors we have already discussed will remain in place and also we have just had the bounce back from the [July 2016] coup attempt that caused distractions in last year’s third quarter,” Gamble said.
Gamble said that Turkey’s economic growth is relatively stronger than countries rated at similar levels although they expect a slowdown in 2018.
“Our forecast for this year is 4.7 percent. We’re looking at growth to slow to 4.1 percent next year. We’re a bit ahead of the curve. Our forecast was a pretty substantial upgrade in June. We changed our forecast from 2.4 to 4.7 in June,” he stated.
“The numbers came out a little bit stronger than what we were thinking,” he added.
Resilience and inflation
Gamble noted that Turkey showed resilience in terms of economic growth and added:
“I think in terms of Turkey’s external position, we saw pressure on the exchange rate, not [just] in the aftermath of the coup attempt but also in the last quarter.
“We saw shifting global conditions and in response to that there was a tightening policy by the Central Bank, and I think people have become more comfortable with the macroeconomic environment and political environment.”
Gamble added that there has also been good “investor sentiment” toward Turkey.
Turkey’s resilience will likely to be tested again when global interest rates rise and global financing conditions change, Gamble warned, as Turkey has large financing requirements.
“That’s probably not going to be the first quarter of 2018 but as we go through 2018 and 2019, we will see more tests,” he added.
On Turkey’s current inflation rate — 10.68 percent — Gamble said Turkey has high inflation compared with emerging economies, and also compared with its own rating group.
“I think this mainly reflects the past through exchange rate devaluation. We think inflation will start falling by the end of the year. But still remain high. We are assuming more exchange rate stability, we’re looking for inflation below 8 percent by the end of next year,” he stated.