International credit ratings agency Fitch Ratings has announced that it has downgraded Turkey's long-term credit rating to 'BB+' from 'BBB-' with a stable outlook.
Regarding the downgrade of Turkey’s credit rating, Fitch stated that political and security developments have undermined economic performance and institutional independence. While the political environment may stabilize, significant security challenges are set to remain. High-profile terrorist attacks have continued, damaging consumer confidence and the tourism sector. In addition, the failure to address long-standing external vulnerabilities has been manifest in a sharp fall in the currency. Fitch does not expect systemic problems that would jeopardize financial stability or trigger a balance of payments crisis, but it does assume a detrimental impact on the private sector.
Fitch also stated that economic growth fell sharply in the second half of 2016 and is expected to recover to a pace that is well below Turkey's performance in recent years. A rebound is anticipated after the 1.8 percent year-on-year contraction in the third quarter of 2016, but this will be held back by weak domestic demand stemming from security and political conditions and, over the near term, currency depreciation. According to the credit ratings agency, Turkey’s economic growth is forecast to average 2.3 percent between 2016 and 2018, compared with an average of 7.1 percent over the five years ending 2015. Investment is not expected to pick up unless structural reform is pursued more aggressively than in recent years.