Another downgrade from Fitch: cuts Turkey economic growth forecast to -3.9%

Turkey’s economy is expected to contract by 3.9% this year, Fitch said in a report on Monday, revising its forecast from a previous -3%. Along with Turkey Fitch also reduced its growth predictions for Russia, Mexico, Brazil, Indonesia, South Africa and the United Kingdom.

Fitch said Turkey’s economy was among those displaying a recovery from a slump in activity – pointing to the surge in credit. But it said its assumptions for growth in emerging markets and elsewhere were based on continuing restrictions on travel, leisure and business activities, and sustained voluntary social distancing.

“The risk of the virus resurging and prompting renewed nationwide lockdowns – or a  massive escalation in voluntary social distancing behaviour – is very high,” Fitch noted. The downside scenario would be based on a major setback in the global health crisis, resulting in GDP failing to return to pre-virus levels until the middle of the decade, it added.

Fitch Ratings still expects global GDP to fall by 4.6% in 2020 in its latest Global Economic Outlook (GEO), released yesterday. The stabilisation in the forecast follows clearer evidence, according to Fitch, in recent weeks of sequential improvements in economic activity. Nevertheless, the risk of a resurgence of the virus and renewed nationwide lockdowns – which could severely interrupt the expected economic recovery path – remains high as per Brian Coulton, Chief Economist of Fitch Ratings.

China’s recovery also continued at a solid pace in May as Fitch notes and thus have raised its 2020 GDP forecast to 1.2% from 0.7% in the previous GEO, the first upwards forecast revision for a long time. Fitch now expects Germany’s economy to shrink by 6.3% in 2020 compared to an earlier forecast of -6.7%, owing to additional fiscal policy easing. The eurozone forecast is, correspondingly, now -8% compared to -8.2% in the previous GEO.

Fitch also has affirmed the US 2020 GDP forecast at -5.6% following recent improvements in the data but it still expect the economy to decline by 9.9% (34% annualised) in 2Q20 and the recent increase in daily new virus cases increases downside risks.

As for Turkey, President Erdogan repeated on Monday that preliminary economic data for June pointed to a “very strong recovery period” and thus Turkey would become one of the world’s star countries to reshape itself after the pandemic.