Turkish growth set to slow sharply

Today’s decision by the Central Bank of Turkey to suspend its daily purchases of US$ should help to stabilise the lira in the very near term. But it does not tackle the underlying concern, namely Turkey’s widening current account deficit. This will require much tighter fiscal policy and, in its absence, recent market moves suggest that the sharp slowdown in growth that we had pencilled in for the second half of 2012 and 2013 could come much earlier.