Fitch Ratings slashed its economic growth forecast for Turkey, warning that the country's currency crisis poses "significant and widespread downside risks."
Turkey's real GDP is now projected to grow 3.8% in 2018 and 1.2% in 2019, down 0.7 percentage point and 2.4 percentage points, respectively, from projections in July, when Fitch downgraded Turkey to BB, with a negative outlook.
Fitch also estimates a quarterly contraction for the final three quarters of 2018. The Turkish lira was down 0.74% against the U.S. dollar as of 7:33 a.m. ET. on Sept. 4.
"We expect tougher external conditions and tighter domestic policy to underpin the near-term adjustment to the economy. However, as we have previously stated, the absence of a more timely and complete policy response and uncertainty about the authorities' tolerance for a prolonged period of low growth add to market concerns about the credibility of economic policy," Fitch said in a report.
General government deficit is expected to widen to 3.2% of GDP this year and 3.6% in 2019, before narrowing to 2.9% in 2020. Fitch's previous forecast was for general government deficit to hit 2.9% of GDP in 2018, and 2.5% of GDP in 2019 and 2020.
Fitch added that the government's continued short-term measures to support the lira, including possible rate hikes, will not be enough to lower the inflation rate to single digits until at least end-2020.
Turkey's central bank said Sept. 3 that it will adjust its monetary stance this month as annual inflation rose to nearly 18%.