The cost of insuring exposure to Turkish debt grew to a one-month high on March 16 as anxieties about Turkey’s economic difficulties and the Afrin military showdown in Syria unsettled markets.

Turkish five-year credit default swaps (CDS) rose 1 basis point from March 15’s close to 176 basis points, IHS Markit data showed. The CDS have moved up 10 basis points over the course of this week. Also showing the strain on the Turkish economy was the Turkish lira (TRY), which at around 1800 Istanbul time had weakened to TRY3.9235 to the dollar, the worst rate seen since late November last year when the currency hit an all-time low of TRY3.9608.

Sticky double-digit inflation and a surge in the current account deficit—on a 12-month sum basis the deficit was equivalent to 6.2% of GDP in January, up from 4.8% of GDP only 12 months ago—are among economic worries unsettling investors.

On March 14, Capital Economics issued a report warning that the sheer pace of growth in Turkey looks increasingly like a cause for concern and there is mounting evidence that the economy is overheating. There are clear signs that demand is outstripping the productive capacity of the economy and will ultimately lead to a slowdown which could cause GDP growth for Turkey to come in at just 3% this year, the consultancy said. That puts Capital Economics at the bottom of the consensus range. On March 13, the Organisation for Economic Co-operation and Development (OECD) raised its forecast for Turkish GDP in 2018 by 0.4pp, upgrading the forecast to 5.3%. 

However, on March 8 Moody’s Investors Service cut Turkey further into junk, saying that the Turkish government—which has injected huge stimulus into the economy since the downturn that followed the July 2016 attempted coup—seems focused on short-term measures, undermining effective monetary policy and economic reform.