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Turkey Country Risk Report Q4 2018

Turkey Country Risk Report Q4 2018

Key View:

The Turkish economy looks set for a sharp slowdown, as rising inflation and a more restrictive domestic and external financing backdrop prove headwinds to growth.

As inflationary pressures remain elevated, businesses will see profit margins squeezed and domestic demand growth will fade over the coming quarters.

The current account and budget deficits will be reduced as the economy reduces its dependence on external financing.

Public debt will likely rise over the coming years, as the government is forced to take on private sector and state-owned enterprise debt.

Following the June 2018 presidential and parliamentary elections, President Recep Tayyip Erdoğan will have more control over Turkey's institutions and the management of the economy.

Turkish nationalism and anti-American sentiment will become more prominent, as Turkey moves further from the secular vision of the Republic's founder, Mustafa Kemal Ataturk.

Turkey's relations with traditional Western allies will continue to deteriorate in the years ahead, as the former drifts in an increasingly independent direction. In particular, tensions with the US will remain high, given a number of disputes.

Key Risks

The major risk to Turkey's macroeconomic trajectory in the coming years stems from its large external financing requirement. Turkey's large current account deficit and dearth of foreign direct investment inflows leaves the country vulnerable to external shocks and a major outflow of foreign capital, which becomes more likely as the US Federal Reserve continues a tightening cycle.

The Turkish lira remains vulnerable and further political or economic shocks could lead to a further sell-off in the unit, raising external financing costs higher.

A deterioration in Turkey-US relations could see harsher sanctions imposed on Turkey and Turkey's NATO membership in doubt.

The banking sector will face rising non-performing loans and may face reduced capital buffers and higher funding costs.


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Turkish Economic Outlook Deteriorating, With Further Downside Risks
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Turkey's Current Account Balance To Swing Into Surplus In 2019
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS EXPORTS AND IMPORTS IN 2016
Monetary Policy
Mixed Signals From Turkish Central Bank
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Turkey's Fiscal Headwinds Come Into Focus
Turkey Country Risk Q4 2018ContentsStructural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
TRY: Three Scenarios For The Turkish Lira
TABLE: FITCH SOLUTIONS CURRENCY FORECAST
10-Year Forecast
The Turkish Economy To 2027
Shine Coming Off Growth Story
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Turkey-US Relations: Four Sources Of Downside Risk
TABLE: US RELATIONS: FOUR SOURCES OF DOWNSIDE RISKS
Global Macro Outlook
Strong Growth, But Greater Headwinds Too
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: TURKEY – MACROECONOMIC DATA AND FORECASTS

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