Turkey: Recession threat looming? – ABN AMRO
|According to analysts at ABN AMRO, lira weakness is not over yet as capital outflows will continue, which could result in a further drop in the currency of around 20%, which means a USD/TRY of around 8.2.
Key Quotes
“We expect inflation to trend upwards in the coming months, from a current level of around 18% to 21% at the end of this year. While declining consumption will push inflation down, higher import inflation will partly reverse this trend. We expect inflation to come down to 8% end-2019.”
“According to the IIF, the drop in credit this quarter is even bigger than during the crisis in 2008/2009. This will weigh on activity, as Turkey’s growth is largely stimulated by credit growth. Imports will decline on the back of lower consumption and production.”
“Exports may increase because the lira made Turkish exports relatively cheap for the rest of the world. However, as Turkey has a large import component in its exports and is dependent on oil and commodity imports, we do not expect the current account to turn positive.”
“Lower growth and a weaker currency, on balance, will make it difficult for certain companies to fulfill their external debt obligations. The non-financial corporate sector is directly in the line of fire and we expect restructuring and default rates to rise substantially.”
“In particular, companies with large foreign currency debt, but that only receive part of their earnings in foreign currencies, will be under pressure. Most likely this will lead to a more abrupt and more pronounced contraction of the economy.”
“In light of these factors, we expect Turkey to face a recession in 2019. We therefore adjust our growth forecast from 2% yoy to -3% in 2019.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.