A variety of external headwinds face the Turkish economy over the coming quarters. Demand for emerging markets assets will remain weak in light of lingering uncertainty surrounding China and the global economy, boding poorly for capital inflows into Turkey where political risk and macroeconomic imbalances remain elevated. ...Counting Russia, Iraq, Egypt and Saudi Arabia among its important non-EU export markets, Turkey s trading partners have been hard hit by falling oil prices and geopolitical conflict. Trade with Russia in particular has suffered in light of both Rus- sia s deep recession and deteriorating diplomatic ties between the two countries over their conflicting interests in the Syrian civil war (see Scenario: Turkey-Russia Clash In Syria...And Beyond , February -- ----), culminating in Russia enforcing trade and travel restrictions targeting Turkey s agriculture and tourism sectors. Turkey s tourism sector faces a very challenging ----, so much so that the government has recently announced a plan to allow tourism companies to delay loan repayments to banks. ...Germany and Russia traditionally represent Turkey s two largest sources of tourism, although rising terror- ism threats and domestic violence stemming from a Kurdish insurgency will dissuade all manner of travellers in the coming year. Turkey s tourism revenues account for approximately - of GDP, but the second round impacts on employment, consumption and investment make it a much more important driver of overall growth.
...Relative to the past decade, we expect slower, more balanced growth in the next decade on the back of less abundant foreign capital inflows and slower domestic credit growth. Turkey faces a challenging foreign policy environment amidst heightened regional tensions and rising external security risks as the government attempts to cement its role as an economic and political power in the region. ...Turkey faces a challenging foreign policy environment amidst heightened regional tensions and rising external security risks as the government attempts to cement its role as an economic and political power in the region. With the Justice and Development Party (AKP) regaining its par- liamentary majority in the November ---- general election, Turkey will operate under a de facto executive presidential system, with negative implications for institutional quality and government checks and balances. A collapse of the government s ceasefire with the Kurdish separa- tist PKK is a major step back for the country, weighing on growth potential. ...Turkey will remain reliant on short-term foreign capital inflows to cover the sizeable current account shortfall, leaving it prone to tightening global liquidity and shifts in international risk sentiment. A dovish central bank will keep inflation above target and ensure a volatile growth trajectory.
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