The falling lira coincides with signs of policy disagreements and rumours of Deputy Prime Minister Mehmet Simsek's resignation. President Recep Tayyip Erdogan and his Justice and Development Party (AKP) want to maintain rapid GDP and employment growth ahead of the 2019 electoral cycle. However, given the unfavourable global financial environment, pro-growth policies could exacerbate lira weakness, high inflation, financial risks and the wide current-account deficit, and eventually cause a sharper slowdown in the economy.
Economic performance will continue to depend largely on external factors including Turkey’s relations with the West and its neighbours.
GDP will slow from last year’s extraordinary level but the timing, steepness and disruption caused are less certain.
Investor wariness and sliding lira may help a soft landing, sending a warning signal, cutting import demand and increasing external debt.
