Turkey’s «macro» image has undergone some welcome changes in the past year or so, with the narrowing current account deficit being the most visible manifestation of the adjustment. This took place as the GDP expanded by 4% in real terms in 2015. The refugee deal with EU and the renewed EU accession agenda were also well received by markets.
Still, the economy abounds with fragilities despite the improvement. The progress on the disinflation front is very limited, with headline CPI and 12-month inflation expectations stuck above 7%. The sharp decline in the manufacturing PMI that started in January 2016 is also concerning, while the recent terrorist attacks might undermine the tourism sector. Importantly, there are nagging concerns about the CBRT’s independence. The headline and geopolitical risks also cannot be written off at this stage.
Turkey: Current Account Improving but Inflation Stuck in High Range
Source: Bloomberg
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