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Turkey: what next?

The plunge in the Turkish lira is likely to push inflation above 20% and tip the economy into recession in the coming months. Our base case is that GDP growth will now average 3.0% over 2018 as a whole (thanks to a strong first half of the year) and be flat over 2019. Our previous forecasts were +3.5% and +2.5% respectively. It now looks more likely than not that the central bank will refrain from hiking interest rates significantly. However, there is a real risk that banks and corporates could struggle to roll over external debts, making the crisis more acute.

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