Turkey’s economy remains highly vulnerable to a reversal in foreign capital flows because of its large current account deficit and increasing reliance on short-term foreign funding for its financing, Standard & Poor's economist Tatiana Lysenko said in an article.
S&P expects slower growth in Turkey, averaging 2.4% in 2014 and 2.7% in 2015 while the rating agency sees the risk of a hard landing if another wave of capital outflows were to hit this year and next. The current global environment offers the Turkish economy opportunities to rebalance its growth model, the article said, adding that compared to euro area periphery sovereigns Turkey is currently in a better position to offset a weakening domestic economy by exporting. However, Turkey is not a particularly open economy and an export recovery is unlikely to fully offset the drag on growth from a cooling domestic economy, according to the article. Last week, S&P commented in a report that the main risk to Turkish companies is higher-than-expected slowing in credit growth due to the central bank's and banking regulator’s plans to keep this in check and ultimately reduce the current account deficit.
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