Energy shock tests Turkey’s macro stability

Turkey’s economy is better placed to face the current energy price shock than it was in 2022, but it is still among the more vulnerable EMs. A temporary price spike will only have a modest effect on the current account deficit, but the inflationary impact could prompt interest rate hikes as soon as tomorrow’s MPC meeting. A larger and more prolonged price spike would create more severe balance of payments strains, renewed downward pressure on the lira and set the rebalancing process back some way.