Fitch Will Upgrade Turkey If…

Fresh hopes that Turkey will receive an upgrade are the news of today. But this time the hopes come straight from the horse’s mouth as it were, and they are more goals than hopes.

In a report issued this week, Fitch said that it will upgrade Turkey from BB to BBB- if it can reduce inflation to the targeted level, lower the current account deficit and increase growth. These are the three things that Turkey must do and if it can do so, it is likely that all ratings agencies will be queing up to upgrade the country to investment grade.

The Turkish economy is making solid progress in returning to a sustainable growth rate, while narrowing the current account deficit and reducing inflation, Fitch said. However, its large external financing requirement still leaves it vulnerable to adverse shocks to the global financial environment.

“We think that if Turkey can achieve these three (although it is pretty hard to improve the structural current account deficit while growth is accelerating), it is pretty clear that every rating agency will upgrade Turkey to investment grade,” said BGC Partners economist Özgür Altuğ in a written note released after the Fitch report.

At present the current account deficit is closing and inflation is coming down, but growth is slowing and steadying after the dizzy heights of the last 2 years, when Turkish GDP grew by over 12% (8.2% in 2010 and 4.6% in 2011).