Turkey and Argentina will undergo sharp contractions in the coming quarters as economic growth decelerates across advanced and emerging market economies, Moody’s Investors Service said in a report published yesterday.
As monetary tightening in major economies and geopolitical trade disputes continue to undermine investment globally, Moody’s is taking an increasingly dim view of the growth prospects of emerging markets like Turkey and Argentina, which “have relatively high exposures to external financing and [are] therefore the most vulnerable,” it said.
Turkey’s economy would likely contract through the first half of next year as the lira’s slump and rising borrowing costs take their toll on the economy, the rating provider said.
The Argentine economy would not return to positive growth until 2020, due to severe monetary and fiscal consolidation under an IMF program, it said.
Turkey’s inflation is hovering near the fastest pace since Turkish President Recep Tayyip Erdogan was first elected 15 years ago, and high borrowing costs are clouding the investment outlook.
“Double-digit inflation, a steep increase in borrowing costs and curtailed bank lending are likely to weigh on household purchasing power, private consumption” and investment, Moody’s said.
Moody’s said it expects Turkish inflation to remain at double digits through 2020 on unanchored inflation expectations spurred by exchange rate and oil price pressures.
Turkey’s inflation last month accelerated to 25.2 percent as the weak lira continued to fuel price gains.
Inflation expectations in Argentina continue to rise despite the central bank’s very tight stance and it will take some time before the benefits of a new monetary framework fully materialize, Moody’s said, adding that it expects inflation to gradually fall to 20 percent by the end of 2020.
Moody’s said it sees Turkey’s economy growing 1.5 percent this year and contracting 2 percent the following year.
It forecast that Argentina’s economy would contract 2.5 percent this year and 1.5 percent next year.
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