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Fitch cuts Turkey's growth forecast; lira dips

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%.