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Even in good times Turkey is vulnerable

After the country’s GDP was revised upwards by 32%, Standard & Poor’s downgrade of its outlook has been unpopular, especially as Moody’s and Fitch saw no reason to follow suit. Julian Marshall reports.

Turkey’s lending boom still booming

The court case over the nomination of Abdullah Gul as president brought demonstrations

The court case over the nomination of Abdullah Gul as president brought demonstrations

NORMALLY WHEN A country issues improving economic data, it expects to see a positive reaction from the markets and from the rating agencies. So when Turkey revised its GDP numbers up by almost 32%, it might have been expected that it would have been reflected in improved sentiment towards the country. However, Standard & Poor’s took a contrary view and downgraded its outlook on Turkey from stable to negative.

Farouk Soussa, S&P’s credit analyst covering Turkey, said there were strong factors behind the decision. "The deteriorating macroeconomic environment threatens to aggravate Turkey’s external vulnerability and skew the risks to its fiscal and economic prospects to the downside," he said on the announcement of the downgrade.

S&P said a big cumulative inflow of funds had subjected the relatively shallow Turkish domestic and foreign exchange markets to the danger of pronounced downswings if foreign investors were to withdraw their funds en masse in response to changing global liquidity conditions or a perceived increase in domestic risk.

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