S&P’s decision was a signal
Last weekend, after the markets were closed, credit rating agency Standard and Poor’s revised the economic outlook of Turkey to “negative” from “stable.” As expected, this decision had a limited impact on markets.
At the beginning of the week, market players said that when the outlook or credit ratings of other rating agencies are added to this decision, the real impact would be seen. It actually happened that way and the impact was limited on markets.
Because the markets are experiencing a bad course in general, they are passing through a period when they would not buy bad news very easily. However, this does not mean that this decision does not or will not have any impact. It is possible to say the S&P decision was mostly perceived as a signal.
In other words, it confused minds, and in the event that new bad news is added then the buying (of the bad news) will occur.
Meanwhile, a debate has started about whether or not Turkey, which is on the “gray list” of the OECD commission on the prevention of black money, should be transferred to the “black list” because of the claims of an al-Qaeda connection. It is expected that the OECD will reach a decision this week. There is the fear that in the event that Turkey is added to the black list, then major negativities will be encountered. On the other hand, informed sources say that even though the United States is uncomfortable with Turkey’s connections, it would not want such a decision to be made. In such a case, the economy would take a major blow, it is reported, and such an oversize punishment is out of the question.
On the other hand, for Turkey to be taken off of the gray list and be included in the normal list is also not quite possible, despite the relevant law it approved last year. Thus, a decision that would give a major blow to the economy is not expected from the OECD.
The biggest problem: The current account deficit
The main reason for the S&P to revise the outlook to negative is, again, the chronic problem of the current account deficit. Other factors that were effective on the decision were counted as the fiscal and monetary policies of Turkey exposing the country to a potential hard landing as external conditions tighten, the erosion of institutional trust, a less predictable policy environment and the declining reserve coverage of net external financing needs.
In short, the Turkish economy, even with growth rates of 4 percent continues to have a current account deficit. The financing of the current account deficit that disrupts the balance is no longer as easy as it used to be, due to developments in the global economy. Because of the belated interest rate measure, there has been serious erosion in the foreign currency reserves and the risk of financing has increased. In other words, the issue has now become visible.
Meanwhile, the S&P has lowered its growth estimation for the Turkish economy to 2.2 percent. Agency officials, in their statements, said this drop should be accepted as a soft landing and not a sharp fall.
The lowering of the growth rate will be a deterrent from the perspective of foreign capital as well.
In short, balances have started disrupting the economy and the decision of the S&P was the first signal that the external world has started perceiving it as such.