Turkish economy slows sharply on weak domestic demand

Today’s weaker-than-expected Turkish Q2 GDP data reinforce the point that interest rate hikes earlier in the year are continuing to weigh on domestic demand. The poor figures are likely to result in further pressure on the central bank to cut interest rates. But large external financing needs, and high and rising inflation, mean that looser policy seems unlikely. Given all this, we are sticking to our below-consensus GDP growth forecasts of 2.5% this year and 2.0% in 2015.