Turkish growth sensitive to potential US rate hikes, says Moody’s analyst

LONDON – Anadolu Agency

Moody’s forecasts Turkey to grow 2.8 percent next year.

An eventual interest rate hike by the U.S. Federal Reserve could threaten Turkish economic growth, a Moody’s analyst said Nov. 26.

“Turkey’s growth model is largely dependent on external financing and a rate hike from the U.S. Federal Reserve could reduce that inflow of capital,” said Alpona Banerji, Moody’s senior Turkey analyst, in an interview with Anadolu Agency ahead of the release of Moody’s Turkey report on Dec. 5.

“The challenges associated with the interest rate hike by the U.S. Federal Reserve expected next year will exacerbate the Turkish economy’s vulnerability to shocks,” Banerji said. “Economic growth in Turkey is unlikely to increase this year, given lower inflows of capital, high inflation and high interest rates, all of which are expected to dampen both domestic consumption and investment activity.”

Turkey has to make structural reforms to improve economic performance and increase growth, Banerji added.

Moody’s has forecast Turkey to grow 2.8 percent next year.

In its last report, Moody’s had estimated Turkey’s growth performance to hover between 2.5 percent to 3.5 percent this year and the next.

Another senior economist from Moody’s, Global Sovereign Risk Group head Alastair Wilson, said Moody’s expected U.S. interest rate hikes to have limited implications for emerging markets, but that could change.

“A hike in interest rates should have limited implications for emerging market economies or sovereigns. However, we saw in 2013 and earlier this year how events can exceed expectations, prompting yield rises, exchange rate pressures and reversals in capital flows.” Wilson said.

“Should those conditions recur, the impact would be felt most keenly in those economies that are most dependent on external capital, such as Turkey,” he added.

After raising Turkey’s sovereign rating to investment grade on May 16, 2013, Moody’s has downgraded the outlook of country’s debt to “negative,” but kept the overall rating at investment grade.