When will sun shine through clouds?

Everyone wonders when it will happen but we will have to wait for a little while longer before we can hear the good news. We will hear it, eventually. In the meantime, we seem to be utterly confused by the statements of rating agencies.

That’s why it is so important to be able to pick up the positive assessments by International Institutions while we are being bombarded by a bunch of different news and statements.

Although they are not included in the reports yet, it makes me happy to see that some agencies actually have positive assessments about Turkey.

Fitch Ratings Director Winslow said, “We expect a sharp contraction in the second quarter, and a more horizontal growth in the third quarter, with the normalization of economic activities at the end of the homestay process, which will hopefully followed by economic improvement in the fourth quarter.”

Winslow even stated that they are anticipating 4.5 percent growth in 2021, which is a sustainable growth rate, according to their assessment. As a matter of fact, “warranted” (healthy) rate of growth for Turkey was 7% in the 80s and 90s. This rate was increased to 5% after 2010. Now, it must be 4.5% apparently.

Fitch Ratings updated its “Global Economic Outlook” report last week and stated that World Economy will shrink by 1,9% this year. But, their expectation for Turkish economy will grow by 0,8% this year is built on the basis of private bank loans-led growth momentum and low interest rate environment.

“Current account deficit assessments do not seem to be quite healthy…”

This immediately made me think of exports. Given the fact that Turkey exports 50% of their products to EU countries, what will we do while the Euro Zone will be shrinking by 4.2%. Unfortunately, Fitch didn’t furnish any satisfying response to my concerns neither in its report nor in its official statement.

Emphasizing Turkey’s external financing needs, FITCH Representative said it was improvement that Turkey’s GDP-to-current account deficit ratio will be around 1% this year, when compared to 2.7% in 2018. I really find it strange Winslow considers this to be an improvement especially now when oil prices are so low during COVID-19 and there is a huge slowdown in economic activity. He probably meant that it could have been worse but this doesn’t make sense either, at least technically.

Fitch’s report said nothing negative about the inflation in Turkey. Inflation rate is expected to hit 8.5% in 2020. Winslow also expects that CBRT will lower rates to 8.75% by a 100 bps cut, before the end of the year, which goes to show that we will not hear any criticism from Fitch Ratings if CBRT decides to cut rates gradually this month and over the following months.

But FITCH Rep noted that real interest rate is already low in Turkey, which could bring further downward pressure on the Turkish lira and cause private sector to experience difficulties in finding external financing.”

In short, Winslow seemed quite hesitant even though he seemingly made almost positive comments about the future of Turkish economy. So, I leave it to your careful consideration to decide whether the assessment he made was noteworthy or not. My expectation is that Turkish Economy will finish 2020 with GDP growth rates around -0.5 % and + 0.5 % as it did last year. I guess, based on this main expectation of mine, I will have to make some fine adjustments to my expectations for other parameters as well.

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