"Political and security developments have undermined economic performance and institutional independence," Fitch said in a statement. "High-profile terrorist attacks have continued, damaging consumer confidence and the tourism sector.” Although the political environment "may stabilize," security challenges remain, it said.
Domestic demand is expected to remain weak in the near term due to political and security conditions, the agency said, and it expects economic growth to average 2.3 percent between 2016 and 2018 -- significantly lower than the 7.1 average growth between 2010 and 2015. The agency warned investment would not recover "unless structural reform is pursued more aggressively than in recent years".
On the positive side, public finances are stronger than external finances and "sufficient" to uplift Turkey's rating one-notch within the "BB" category. "Government debt levels are also well below the peer median," Fitch added. The agency estimates government deficit to GDP ratio was 1.6 percent last year, and government debt to GDP ratio was 27.8 percent. Steps by the central bank to tighten monetary policy last week is not enough to meet Turkey’s inflation target this year, Fitch added.