S and P upgrades Turkey outlook despite political instability

Standard and Poor's upgraded its outlook for Turkey's credit rating on Friday, judging the prospects for the nation's economy to be stable despite political instability that may dampen growth and reform plans.

The end to the negative outlook on the BB+ foreign currency rating, one rung below an investment grade, came a day after President Recep Tayyip Erdogan's plans to consolidate power advanced with the resignation of Ahmet Davutoglu as prime minister.

"The stable outlook reflects our expectation that Turkey's economic growth prospects will remain resilient to external shocks and domestic political risks," Standard and Poor's said in a statement.

It noted the Turkish economy has weathered several challenges including increased domestic violence after the collapse of the peace process with Kurdish militants, two general elections and a sharp drop in the value of the lira.

Standard and Poor's said it expects Turkey's economy to grow by 3.4 percent this year, down from 4.0 percent in 2015.

It raised the rating outlook despite acknowledging it expects "heightened political uncertainty in 2015 to spill over into 2016, and this could also dampen economic growth prospects this year." 

The ratings agency said it also expects that "the implementation of the ambitious medium-term economic program for 2016-2018 is likely to stall in 2016, in our view, due to the president's focus being directed more toward bringing about constitutional change with the end goal of achieving an executive presidency."

Among the risks to the Turkish economy it identified are weak tourism, an increase in oil prices, and a rise in the deficit.