Fitch forecasts slower growth, higher inflation in Turkey

ISTANBUL

Fitch has reduced its economic growth forecasts for Turkey and increased its inflation forecast for the country in the wake of a significant loss in the Turkish Lira’s value against the greenback in its latest global economic outlook.

In the outlook, which was released on Sept. 21, Fitch cut its 2019 GDP growth forecast for Turkey from 3.6 percent to 1.2 percent.

The depreciation of the lira will push inflation to 20 percent at the end of 2018, up from a 14-year high of 15.8 percent in July, according to Fitch. It also revised up its 2019 forecast from 10.8 percent to 15 percent.

“We now expect inflation to remain in double digits though the forecast period, despite the significant slowing of economic activity,” it said, adding that “the 625 basis point hike in policy rates on Sept. 13 should ease near-term currency pressure, but rates will need to stay high for a prolonged period to lower inflation on a sustained basis.”

Fitch’s baseline is that the lira will stabilize around USD/TRY 6.2 and hold at this level over our forecast period, though this is subject to major uncertainty.

The GDP is lower than previously expected, as trade tensions between China and the United States harbor protectionism, Fitch also said.

The rating agency said it now sees China’s GDP in 2019 at 6.1 percent, compared to the previous forecast of 6.3 percent for the same year.

Meanwhile, the global growth forecast for next year was lowered to 3.1 percent by 0.1 percentage points.