Fitch revises Turkey's outlook to "stable"

ANKARA (A.A) - November 23, 2011 - International credit rating institution Fitch revised Turkey's outlook from "positive" to "stable". It also affirmed the ratings at "BB+". The revision of the outlook to "stable" reflects an increase in near-term risks to macroeconomic stability as Turkey faces the challenge of reducing its large current account deficit and above-target inflation rate against the background of deterioration in the global economic and financing environment, stated the institution on Wednesday. Ed Parker, Managing Director in the EMEA Sovereign group at Fitch, said, "nonetheless, the ratings are supported by favourable government debt dynamics, a healthy potential growth rate and a strong banking sector. If Turkey attains a 'soft landing' and near-term macro-financial risks recede, then upward rating dynamics could resume." Fitch stated that Turkey's macroeconomic performance had been very volatile as it has a low savings rate and had been unable to grow robustly without generating major imbalances.  In Fitch's view, the economy "over-heated" with bank credit surging by 36 percent year over year, fuelling double-digit GDP growth, rising inflation and a widening in the current account deficit (CAD. Economic activity and credit growth have started to slow in recent months, stated Fitch, noting that GDP growth would ease to 2.2 percent in 2012 from 7.5 percent in 2011, before recovering to 4.5 percent in 2013, inflation would decline and the CAD will narrow.  Fitch forecasts the CAD to increase to 9.8 percent of GDP in 2011 from 6.5 percent of GDP in 2010, well above the ten-year "BB" range median of 2 percent, before easing to 7.6 percent in 2012. Year-to-date CAD financing has been dominated by short-term and portfolio debt inflows and running down foreign assets, leaving the country vulnerable to the worsening in global financial conditions, stated Fitch.