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Fitch Raises Turkey’s Outlook to Stable on Continued GDP Growth

Cagan Koc and Jim Silver

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Fitch Ratings raised its outlook for Turkey’s sovereign assessment to stable from negative, citing an improving current account balance, continued economic growth and falling inflation.

Fitch affirmed its BB- rating for Turkey, three levels below investment grade and on par with Greece, Bolivia and the Dominican Republic.

The upgrade comes just weeks after Ankara ended an offensive against U.S.-backed Kurdish militants in northern Syria last month, easing concerns after the military push had had rattled Turkish markets.

“Turkey has continued to make progress in rebalancing and stabilizing its economy, leading to an easing in downside risks” since July, Fitch said in the statement.

“Geopolitical risks continue to weigh” on the rating, Fitch said. Still, “we do not expect Turkey’s operation in Syria to have a significant impact on credit fundamentals in the absence of a more far-reaching conflict,” the ratings company added.

Fitch last lowered Turkey’s rating in July, days after President Recep Tayyip Erdogan unexpectedly removed central bank Governor Murat Cetinkaya for not cutting interest rates. The rating company warned of deteriorating institutional independence and the credibility of economic policy.

The central bank has since delivered three bigger-than-forecast interest-rate cuts as part of a front-loaded easing cycle, bringing cumulative reductions in the second half of the year to 10 percentage points.

Meanwhile, signs of fiscal stress are growing following an economic downturn last year that hit tax revenue, and a spending spree amid back-to-back elections. The budget gap widened to 85.8 billion liras ($15 billion) through September this year, a 51% increase compared to the same period in 2018.

Fitch today maintained a forecast for gross domestic product to grow 3.1% in 2020, helped by rising disposable incomes, with inflation finishing 2020 at 12%, easing to 10% a year later.

To contact the reporters on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net;Jim Silver in New York at jsilver@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Lin Noueihed at lnoueihed@bloomberg.net, Hari Govind

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