An alternative scenario for Turkey

Turkey’s hefty external financing requirement makes it one of the most exposed economies in the emerging world to a fresh global shock, the most likely of which is a renewed escalation of the euro-crisis. Given our views on Europe, we therefore remain downbeat on Turkey’s prospects in 2013. But the recent improvement in global risk appetite has raised the prospect of an alternative scenario in which capital flows to EMs remain strong. In this case, the Turkish economy would probably grow by a respectable 4-5% this year – but the current account deficit would widen once again to unsustainable levels.