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Fitch Ratings Says Turkey on Track for Soft Landing

Posted on 31 August 2012

Fitch Ratings has just published a report on the Turkish economy and says the country has made good progress in returning to a sustainable growth rate while reducing the rate of inflation and the current account deficit. However Fitch warns the Turkish economy is still vulnerable to the global financial environment due to its large external financing requirement.

Last year the agency identified the Turkish economy as having overheated, and having created large macro-economic imbalances. This was seen as being the main obstacle to Turkey being upgraded to investment-grade, and it is hoped that further progress towards controlling inflation, and narrowing the current account deficit to a more sustainable level could see the country upgraded in the near future.

GDP growth has slowed down during the past five quarters, but Fitch fully expects Turkey to avoid recession as this slower growth is being offset by strong growth in exports that is also helping to narrow the trade deficit. The agency is predicting growth of 2.8% this year, and 4.5% next year.

Turkey has seen a huge boom in exports to North Africa and the Middle East that has more than offset the drop in exports to the EU. Iraq and Iran have accounted for the two thirds of this export growth, and gold exports have increased by 600%.

Even though Turkey has made good progress towards achieving a soft landing, it’s still vulnerable to a sudden reduction in external financing if for instance the Eurozone crisis were to worsen. Its large exposure to Middle Eastern markets isn’t without risks either.

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