Moody’s on Friday said it changed the outlook on Turkey’s Baa3 government bond rating to negative from stable, citing increased pressure on the country's external financing position and weaker near-term GDP growth prospects. Moody’s at the same time affirmed Turkey’s Baa3 rating at its current level.

Moody’s explained that its decision to change the outlook to negative prompted by the following drivers: (i) increased pressure on the country’s external financing position driven by heightened political uncertainty and lower global liquidity, adversely affecting foreign and domestic investor confidence, and (ii) in a context of a slowing near-term outlook for GDP growth, growing uncertainty about medium-term growth trend because the prospects for growth-enhancing structural reforms may be diminished in the more uncertain policy environment that is accompanying the domestic political turbulence.

While domestic political risk had been material in Turkey -notwithstanding the conclusion of recent municipal elections- developments since December 2013 highlight intensifying internal political divisions, Moody’s said. The rating agency expects these tensions in the political arena to persist until at least the second quarter of 2015, when parliamentary elections are due.

Moody’s also said it expects a cyclical slowdown due to lower global capital flows, which will dampen consumption and investment. This will in turn slow down growth to 2.5% in 2014 and 3% in 2015 (down from the 4% growth rate registered in 2013 and below the 4% medium-term trend growth), Moody’s stressed.