Summary - U.S. Impasse Finally Gives Turkey Benefit the Doubt
It is Eid in Istanbul, everyone is taking a week off in Turkey. Most importantly, the Turkish government should be thankful for the shutdown of the U.S. government. Due to the shutdown, bond buying plan would continue as it was originally planned. Turkish government has put a huge emphasis on reducing its current-account deficit, which has account for 7% of GDP as of August. However, due to the unsustainability of the deficit, the government moderated GDP growth forecasts and bumped inflation expectations. In light of the optimism, one economist at Bank of America Merrill Lynch quoted that the Turkish government is making progress ahead of others in significant measures, particularly for its efforts of narrowing the current-account deficit and macro-prudential measures. With global backdrop provides more room for emerging markets recently, more time are granted to make necessary periodic economic adjustments, which will assist Turkey obtain the markets “benefit of the doubt”. Turkish government has demonstrated its willingness and capability to adjust accordingly during the financial crisis and the euro-zone debt crisis with its effective medium-term economic program. However, to a certain extent, Turkey remained vulnerable to the external financing risks potentially, because of its high short-term debt and weak liquidity. Nonetheless, the upcoming forecasts on the current-account deficit and inflation are promising. The fact that the Turkish government intended to keep interest rates near record low would largely restraint itself with a slower pace of economic growth.