Turkey’s economic growth is expected to sharply weaken to 2.9% this year from 4% in 2015 as uncertainties generated by the July coup attempt and the government’s response continue to put pressure on economic activity, Fitch Ratings said in the latest edition of its Global Economic Outlook published on November 29.

The estimate represents a downgrade on the 3% GDP growth expected by the ratings agency a month ago. It also brings the agency into line with most other forecasters, including the the World Bank and the OECD.

Investors are closely watching comments by rating agencies as their views on the economy affect capital flows. Turkey is particularly sensitive to any sudden shift in investor sentiment because of its large current account deficit. The recent sharp fluctuations in the value of the lira has been a stark reminder of how important investor confidence is.

Fitch remains the only major ratings agency to keep Turkey at investment grade following rating cuts by S&P and Moody’s in the wake of coup attempt. “We expects a modest improvement in growth next year as the political environment stabilises,” Fitch said. Still, the improvement will be feebler than earlier thought, as Fitch also lowered next year's growth estimate to 3.1% from 3.2% expected in October. Growth will edge up to 3.5% in 2018, according to the rating agency.

“The government has introduced a variety of stimulus measures that should support consumption, which will remain the main source of growth. Prospects for investment are dim in the current political environment,” Fitch said in the report. The rating agencys expects consumer spending growth to slow to 4.3% this year from last year’s 4.8% and to decline further to 2.9% in 2017. Fixed investments will grow 2.4% in 2016, easing from 4% in 2015, but investment growth will pick to up 4% next year, it predicts.

“Domestic political tensions, weakening current account data and shifting sentiment towards emerging markets have put pressure on the lira,” Fitch said, forecasting USD/TRY at 3.35 at the end of this year and 3.43 at the end of 2017.

Noting that the recent 50bps hike in the one-week repo rate underlined the central bank’s willingness to react to market pressures, Fitch said it was expecting another hike at the next rate-setting meeting to be held on December 20. “We have put our interest rate forecast on an upward path for 2017-8.75%- and 2018 -8.75%-to reflect higher global bond yields and stubbornly high inflation.”

Fitch’s inflation forecasts for 2016 and 2017 are 7.3% and 7.7%, respectively, while it expects CPI inflation to ease to 7.5% in 2018.