While dollar exposure should take into account the position at the firm level and natural hedges and other factors, Turkey, Brazil, Indonesia and Russia have aggregate USD liabilities in excess of their estimated annual USD export revenues, the Organization for Economic Cooperation and Development (OECD) cautioned on March 7 in its latest interim economic assessment.

Turkey's economy shrank by 1.8% y/y in the third quarter of 2016, registering the first annual contraction since Q3 2009. The 2017 economic outlook is no brighter than it is because the main risk items such as domestic political noise, geopolitical worries and a more challenging global economic environment are still on the table.

“Sharp movements in foreign interest rates, rapid depreciations of the domestic currency, and or rising risk premia can induce financial stresses in emerging economies with high levels of overseas borrowing or those with a mismatch between foreign currency denominated debts and export revenues”, the OECD said on March 7.

OECD projects global GDP growth will pick up modestly to 3.6% in 2018, from 3% in 2016 and an estimated 3.3% in 2017, boosted by fiscal initiatives in the major economies. |It also forecasts GDP growth in the US moving up to 2.8% in 2018, supported by an anticipated fiscal expansion, especially during next year, despite higher long-term interest rates and continued headwinds from the stronger USD.

The OECD also hiked its 2017 growth estimate for the US slightly by 0.1pp to 2.4%. The organisation expects employment in the US to keep rising steadily, although it anticipates an easing of the pace and further growth in wages as the labour market tightens.

The OECD’s revised projections on the US economy point to an improving, although clearly limited, growth performance and rising inflation pressure which could push the Fed to hike policy rates more than the expected three occasions in 2017. The Turkish lira is directly exposed to the Fed’s interest rate policy.

The OECD also projects the Euro area GDP growth performance to continue at the current moderate pace, supported by an accommodative monetary policy and a modest fiscal easing over the coming years. The European Union makes up Turkey’s largest export market.

In its Economic Outlook published last November, the OECD cut its 2016 GDP growth estimate for Turkey to 2.9% and also warned that the Turkish economy was heading for a sharp slowdown in 2016 having weathered a coup attempt in July and engaged in military operations in Syria. However, recovering household demand and gradual increases in exports should help GDP pick up over the next two years.

Fitch Ratings expects Turkey’s economic recovery to be modest with GDP growth remaining below 3% this year and next.