Moody’s says Turkey vulnerable to strong US dollar

Global credit rating agency Moody’s has warned Turkey about appreciation in the value of the US dollar against the Turkish lira and about changes in capital flows as a result of foreign exchange fluctuations.

In its quarterly “Global Macro Outlook” report issued this month, Moody’s said the expected tightening in US monetary policy is likely to spark shifts in global capital flows and fluctuations in foreign exchange rates, impacting the global economic outlook. Among the countries that are more vulnerable to a strengthening greenback and the potential outcomes are Turkey and South Africa, the agency maintained.

“The anticipated tightening of US monetary policy comes at a time when most other central banks are easing policy or maintaining their loose stance. This unusual divergence reflects different prospects for growth and inflation around the world. This gap will fuel shifts in capital flows and currency values and affect the global economic outlook. Countries such as Turkey and South Africa are more vulnerable to the strong US dollar and the changes in capital flows that it reflects,” Moody’s said.

“While prospects of robust growth point to a gradual tightening of monetary policy and higher yields in the US, economic prospects are subdued in many other regions,quot said Marie Diron, a Moody’s senior vice president and author of the report. quotThe outcome is likely to be increased divergence between those economies that have built up resilience, like the US and India, and those that are vulnerable to negative shocks, like Brazil, South Africa and Turkey.quot

The report also said robust US growth and stabilizing financing conditions will help the global economy to grow more strongly next year after muted growth in 2015 and added that the divergence between major economies is likely to widen.

Moody’s expects growth in the gross domestic product (GDP) of G-20 countries to be 2.8 percent in 2015, before rising to around 3 percent in 2016.