Moody’s revises up growth forecast for Turkey, highlights strong need for reform

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Moody’s has revised up its 2017 and 2018 growth forecasts for Turkey following a stronger-than-expected 2016 growth data, but added that Turkey’s economic rebound would unlikely last without the realization of key structural reforms. 

In its latest credit outlook, which was published on April 10, the rating agency said it revised up its growth forecast following the release of the fourth-quarter GDP data to 2.6 percent from a previous 2.2 percent in 2017 and to 2.9 percent from a previous 2.7 percent in 2018. 

“Consumer prices are rising much faster than producer prices, suggesting that the causes of the inflation spike are not solely tied to the depreciation of the Turkish Lira,” it added. 

Turkey’s economy grew a faster-than-expected 3.5 percent in the fourth quarter of 2016, mainly due to a significant rise in consumption, official data showed on March 31, bouncing back after last July’s coup attempt and underpinning hopes of a recovery less than three weeks ahead of a referendum. 

Growth in 2016 as a whole was 2.9 percent, according to data from the Turkish Statistical Institute (TÜİK), above forecasts. 

Postponing the implementation of structural reforms such as for the labor market, tax and pension systems means that last year’s slowdown in growth was inevitable, even though the figures were better than they had initially expected, Moody’s warned. 

The latest such delay arose from the ruling Justice and Development Party’s (AKP) post-coup focus on changing the government from a parliamentary to an executive presidency system, which the party expects will centralize decision-making, it said. 

“Additional postponements would likely limit a recovery to past rates of growth,” said Moody’s.

The rating agency late on March 17 cut its outlook on Turkey’s rating to “negative” as risks to the country’s credit profile have “risen materially” in recent months. 

Moody’s noted that the “tense political environment” following the failed coup attempt on July 15, 2016, has “persisted for longer than expected” and has “undermined the country’s administrative capacity and damaged private sector confidence.” 

Moody’s rates Turkey at Ba1. It previously had a “stable” outlook on the sovereign.

The ratings agency also affirmed its “junk” non-investment grade of Ba1 on Turkey’s debt, saying its economic and fiscal strength served as a buffer against the risks posed by its diminished institutional state.