Moody’s late on Friday cut its outlook on Turkey’s rating to “negative” as risks to the country’s credit profile have “risen materially” in recent months.
The ratings group noted that the “tense political environment” following the coup attempt last July has “persisted for longer than expected” and that actions taken against various forms of opposition to the government have “undermined the country’s administrative capacity and damaged private sector confidence.”
“Partly as a consequence, Turkey has experienced a further slowdown in growth,” Moody’s added.
Indeed, the economy contracted at a year-on year rate of 1.8 per cent in the third quarter of last year, Bloomberg data show. It is forecast to have picked up to 2.6 per cent in the final three months of last year, but remain below the 4.7 per cent and 3.1 per cent notched in the first and second quarter of 2016, respectively.
Moody’s rates Turkey at Baa1. It previously had a “stable” outlook on the sovereign.
Russia and Cyprus get the good news from Standard & Poors
Russia’s outlook raised from positive to stable and the rating affirmed at BB+ by S&P. They see average growth at 1.7% from 2017 to 2019.
USD/RUB is at the low of the day on the headlines.
Cyprus was raised to BB+ from BB and now has a stable outlook. They see 2-3% growth out to 2019.
With the Fed expected to further tighten financial conditions following its now guaranteed March 15 rate hike, and the ECB recently announcing the tapering of its QE program from €80 to €60 billion monthly having run into a substantial scarcity of eligible collateral, the third big central bank – the BOJ – appears to have also quietly commenced its own monteary tightening because, as Bloomberg calculates looking at the BOJ’s latest bond-purchase plan, the central bank is on track to miss an annual target, by a substantial margin, prompting investor concerns that the BOJ has commenced its own “stealth tapering.”
While in recent weeks cross-asset traders had been focusing on the details and breakdown of the BOJ’s “rinban” operation, or outright buying of Japan’s debt equivalent to the NY Fed’s POMO, for hints about tighter monetary conditions and how the BOJ plans to maintain “yield curve control”, a far less subtle tightening hint from the BOJ emerged in the central bank’s plan released Feb. 28, which suggests a net 66 trillion yen ($572 billion) of purchases if the March pace were to be sustained over the following 11 months. As Bloomberg notes, that’s 18 percent less than the official target of expanding holdings by 80 trillion yen a year.
Some more details: the central bank forecast purchases of 8.9 trillion yen in bonds in March, based on the midpoint of ranges supplied in the operation plan. Maintaining that pace for 12 months will see it accumulate about 107 trillion yen of debt. At the same time, 41 trillion yen of existing holdings will mature, leaving it with a net increase of 66 trillion yen, well below the stated goal of 80 trillion yen.
Japan’s real gross domestic product shrank 0.5% on the month in January, the Japan Center for Economic Research said Monday.
Exports fell 1.2%, partly on sluggish automobile shipments. Capital investment slipped 0.4%.
Meanwhile, consumer spending rose 0.4%.
Former Finance Minister and senior Congress leader P Chidambaram on Friday questioned the Central Statistical Organisation’s GDP growth figure and termed demonetisation a fixed match between the government and Reserve Bank of India (RBI).
He said demonetisation has interrupted India’s economic story and “to recover from this, it would take between 12-18 months, maybe right up to the end of 2017-18”.
“Look at the CSO’s numbers, it seems nothing has happened to the economy. The dazzle of the number cannot hide the fact that crores of people in the country have been devastated,” said Chidambaram.
“The government has changed the methodology. The Gross Value Addition (GVA), when they add taxes to it and subtract subsidies, they arrive at the GDP,” he added.
Chidambaram further said: “The additional tax revenue is not a reflection of growth. Equally being stingy on subsidies doesn’t impact growth.”
Giving out quarter-wise GVAs of three years, Chidambaram said: “In 2014-15, quarter-wise GVAs were 7.26, 7.91, 6.29 and 6.19 per cent. There is no particular trend. It went up and came down. In 2015-16, the numbers are 7.75, 8.44, 6.95 and 7.42 per cent. Again it doesn’t show any trend.
February 2017 Eurozone Markit manufacturing PMI data report 1 March 2017
- Flash 55.5. Jan 55.2
- New orders 56.1 vs 56.0 prior
Another new high for the PMI. Up to its best since Apr 2011. Same for new orders.
The recovery in European manufacturing goes on. The euro is finally helping exporters as export orders jumps to the highest in nearly 6 years.
Prices rose once again but fortunately on both sides. Input prices rose the fastest since May 2011 and output prices followed them at the fastest rate in nearly 6 years. That’s good news on the margin front.
Eurozone manufacturing PMI
Moody’s Investors Service expects Indian economic growth to continue to pick up as liquidity conditions normalize, supporting expectations that the economic disruption caused by demonetization will be short term in nature.
Moody’s conclusions were contained in its just-released report on Indian credit, “Economic Slowdown from Demonetization Wanes; Credit Implications Unfolding”.
The Indian government (Baa3 positive) announced its demonetization measures on 8 November 2016 with the withdrawal of all INR500 and INR1,000 notes, or approximately 86% of the banknotes in circulation by value.
The Moody’s report provides an update on the implementation of demonetization and subsequent remonetization, the impact on the economy, and the credit implications for the government, companies, banks and the structured finance market.
The recovery in the total stock of currency in public circulation, which had declined from about INR17 trillion before demonetization to a low of INR7.8 trillion in early December, before rebounding to about INR9.8 trillion in early February 2017, illustrates this incremental improvement in liquidity. Looking ahead, we expect remonetization to continue at a similar pace.
Moody’s expects GDP growth to moderate to about 6.4% in the January to March 2017 quarter from 7.0% in the October to December 2016 quarter, before picking up above 7.0% thereafter, as the temporary drag from demonetization fades.
Moody’s further notes that sales in India’s real-estate and auto sectors are gradually recovering after falling sharply in the immediate aftermath of demonetization and expects the trend to continue over the second half of this year.
Steel production also took a substantial hit following demonetization, but has rebounded quickly and is currently performing better than anticipated. Meanwhile, demonetization has had little impact on India’s rated oil and gas refining and marketing companies, in line with Moody’s prior expectations.
On the other hand, the slowdown in economic activity has weighed on demand for credit among retail borrowers. We expect this trend to continue over the next few months and for asset quality to deteriorate in the current quarter, although Indian banks have sufficient buffers to withstand the impact.
Contrary to all expectations, India’s economic growth stood at seven per cent in the third quarter of the current financial year despite demonetisation, keeping the projection for the expansion at 7.1 per cent for the year which is the same as was pegged in the earlier data by the government.
The data, which is bound to evoke criticism from independent economists, was released as second advance estimates by the Central Statistics Office after its first advance estimates did not take into account demonetisation effect.
The year 2016-17 was projected to show the same growth in the second advance estimates against the first one despite higher base effect. The growth in 2015-16 was raised to 7.9 per cent against 7.6 per cent estimated earlier, after the first advance data was released.
However, much of the growth was projected to come from agriculture which is expected to expand by 4.4 per cent in 2016-’17 against 0.8 per cent a year ago and government-supported expenditure that rose 11.2 per cent against 6.9 per cent.
|Quarterly GDP growth|
|Source: Central Statistics Office|
Elsewhere, electricity and construction were also projected to grow higher at 6.6 and 3.1 per cent in the current financial year against 5.5 and 2.8 per cent in the previous year respectively.
The quarter — October-December– which was supposed to have worst hit by the demonetisation– saw manufacturing growing by 8.3 per cent against 6.9 per cent in the second quarter. Similarly, agriculture rose by 6 per cent against 3.8 per cent.
However, trade and financial services were impacted much as these rose by just 3.1 per cent in the third quarter against 7.6 per cent in the second quarter.