Fitch downgrades its growth forecast for Turkey amid currency crisis

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Fitch Ratings has revised its growth forecast for Turkey to 3.8 percent in 2018 and 1.2 percent in 2019, lowering it by 0.7 percent and 2.4 percent, respectively, according to a press statement on the agency’s website.

“We expect that growth will recover somewhat in 2020, to 3.9 [percent], but will remain below the trend rate,” it said.

“The lira’s sharp fall will force a rebalancing of Turkey’s economy through lower growth and a narrowing of the current account deficit.”

Turkey’s economy had defied all expectations by growing 7.4 percent in 2017; however, the lira has lost more than 50 percent of its value this year, amounting a currency crisis that has significantly affected inflation, foreign trade and the banking system.

According to data released on Monday, monthly inflation rose again in August to nearly 18 percent, the highest since late 2003.

The lira was at 3.76 to the US dollar on Jan. 1, while it plunged to 6.70 on Tuesday.

Accordingly, the rating agency also upgraded its inflation forecast from 13 to 14.7 percent annually in 2018 and from 10.8 to 17.3 annually in 2019.

“Our revised forecasts assume that the authorities will continue taking short-term measures to support the lira, and that the Central Bank of the Republic of Turkey will raise rates, but that these will be insufficient to lower the rate of inflation to single digits until at least end-2020,” the statement said.

“We continue to view capital controls or an IMF programme as unlikely,” it added.

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