Turkey, S&P Diverge on Outlook; Basci Says No ‘Hard Landing’ for Economy
Turkey’s central bank said there was no risk of a “hard landing” for the country’s economy, disagreeing with an assessment by Standard & Poor’s yesterday.
There is no overheating in the economy and the central bank is prepared for any sudden halt in foreign capital inflows, governor Erdem Basci said at a news conference in Ankara today.
Basci’s words were in contrast to the statement by Standard & Poor’s, which said a rapid economic slowdown was likely and the government should aim for a higher budget surplus excluding interest payments to help deal with a widening current account deficit.
“We see no risk of overheating or a hard landing,” Basci said. The bank has the tools to deal with any sudden halt in inflows of foreign investment into Turkey’s markets, he said.
Standard & Poor’s and Fitch have said there’s uncertainty over the outlook for the country’s credit, and the lira is the worst performing currency this year on concern that the current account deficit threatens stability of the economy. The gap has widened to the biggest since records began in 1984. The country grew an annual 11 percent in the first quarter of the year, the fastest rate among the Group of 20 major economies, drawing in more imports of oil and consumer goods.
“If the debt flows stop coming into the economy and if the economy comes to a hard landing and slows down really rapidly, which we think is likely, that could really hit public finances,” S&P analyst Frank Gill said in a phone interview yesterday.
Gill said Turkey’s fiscal position is “too accommodative,” urging the government to slow spending. Basci said fiscal policy is tighter and supports the central bank’s aims after the government pledged to save extra income from a tax restructuring offer.
Basci also disagreed with an IMF assessment last week that the current account deficit may widen to 10.5 percent of economic growth this year. The deficit will remain in single figures, he said today.
The lira rose 1.1 percent to 1.6729 per dollar at 5:43 p.m. in Istanbul, advancing for a third day after reaching the weakest in more than two years on July 25. The main ISE National 100 index (XU100) of shares gained 2.2 percent to 62,530.88. Yields on two-year benchmark bonds fell 14 basis points to 8.81 percent.
The IMF predicted the expansion of the economy may slow to 2.5 percent next year from 8.7 percent in 2011.
Fitch places Turkey one level below investment grade, while Moody’s Investors Services and Standard & Poor’s rank the country two grades below investment status.
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