- Output growth looks set to slow sharply in the near term with higher lending rates and depreciated lira constraining private consumption and investment. A likely modest pick-up in foreign demand should help lift exports in 2014, as should the weaker lira. Even so, the likely pick-up in exports appears unlikely to be sufficient to fully offset the deep slowdown in domestic demand, causing real GDP growth to slow to 1.7% in 2014 from perhaps 3.2% in 2013.
- The weaker lira should keep 12-month headline inflation above 8% during the remainder of this year despite favorable base effects related to food prices that would have otherwise lowered inflation to 7% by this coming December. Even though underlying price pressures should ease next year with weaker domestic demand, 12-month headline inflation looks set to peak at 9% in July before slowing to just above 8% by December 2014.
- Slower growth and the weaker lira should result in a marked reduction in the current account deficit next year, to 5% of GDP from 6.7% likely this year. Financing a deficit on the order of 5% of GDP would be challenging, but should be doable assuming a strong policy response and that a gradual Fed tapering is absorbed by global markets without a major further adverse turn against emerging markets.
September 03, 2013
Large macroeconomic imbalances and increased political tensions have left Turkey among the hardest hit emerging markets as global market sentiment worsened. The policy response thus far has been hesitant and somewhat inconsistent. Sizable monetary tightening seems unavoidable if stability is to be restored. Real GDP growth will slow sharply next year, but recession should be avoided with a timely policy response.Read More
June 18, 2013
Concerns about the possible winding down of monetary accommodation in the U.S. had already brought the lira and Turkish asset prices under downward pressures. Market concerns were reinforced further by heightened political uncertainty triggered by ongoing anti-government protests. Given Turkey’s large external financing needs, odds for abrupt lira depreciation will remain high unless confidence is restored soon.Read More
March 07, 2013
External financing needs look set to increase with the current account shortfall likely to widen through 2014. Heavy reliance on short-term capital inflows looks likely to continue. This will leave the lira vulnerable to shifts in market sentiment. An abrupt lira depreciation would hurt balance sheets of companies the most as they run large unhedged net open foreign exchange positions.Read More
November 30, 2012
Output growth is likely to accelerate in 2013 after slowing significantly this year. Slower and more balanced growth has helped reduce external imbalances. Headline inflation looks set to remain above the 5% target through 2014. Even so, the central bank is likely to ease further to discourage short-term capital inflows following Turkey’s recent upgrade to investment grade.Read More
September 14, 2012
Real GDP growth has slowed markedly thus far this year. Leading indicators point to a further slowdown during the remainder of the year. With capital inflows set to strengthen, appreciation pressures look set to intensify. Slowing output growth and a strong lira would likely prompt the central bank to implement more aggressive easing.Read More
June 25, 2012
Since late 2010, the central bank has sought to tighten monetary conditions to slow inflation and narrow the current account deficit while leaving its key policy interest rate unchanged. A simpler strategy may be needed, with unambiguously higher interest rates, if global financial pressures intensify.Read More
April 13, 2012
Increases in foreign exchange reserves since January indicate that capital inflows have recovered strongly from depressed levels after August 2011. Whether increased capital inflows are sufficient to cover the current account deficit will depend importantly on whether the central bank sustains the higher money markets interest rates it has brought about since late last year to stem the lira’s slide.Read More