Analysts at ABN AMRO suggest that a recession is on the horizon for Turkey, but the depth of the recession depends on the measures taken and spill-over to other emerging markets is expected to be limited. Key Quotes “The lira down 41% year-to-date USD/TRY rose above 7.2 last Friday, at its peak. Rising tensions between the US and Turkey added fuel to the fire, while measures to halt the fall were seen as insufficient. Since then the lira has recovered somewhat, helped by the announcement this morning that FX swaps will be limited to 25% of banks’ equity (previously 50%). This will limit the ability of locals to do FX swaps. USD/TRY is now back to the low 6’s at the time of writing. The fall in the lira will result in a significant rise in the already high inflation rate (15.9% in July) in the coming months, and a sharp fall in purchasing power.” “Difficult to find alternative financing The measures taken by the government and central bank so far are not sufficient to turn the tide. President Erdogan seems uninclined to allow the central bank to raise interest rates, and even less so to ask the IMF for support.” “With or without interest rate hike, a recession seems unavoidable According to a recent publication of the IIF, funding of the external financing needs (estimated at around USD 200 bn, or around 25% of GDP) is still available. The rollover rate of external debt stood at some 110% in Q2, but the cost of funding is rising. In order to avoid an acute balance of payments problem, substantially higher interest rates and for example an agreement with the IMF are probably inevitable. This would probably trigger a recovery of the lira towards 5.5 versus the US dollar. Higher interest rates, however, would lead to a sharp slowdown in lending and most likely a contraction of the economy next year.” “Spillover to other Emerging markets will be limited At the start of the week, several other emerging markets, such as for example South Africa, Indonesia, Russia, Argentina and Brazil saw their currency weaken. Furthermore country spreads rose, while stock markets across the world were also hit.” “Still, there are plenty other risks remaining for emerging markets In our base scenario, global conditions remain supportive for EMs, financial conditions accommodative, and contagion from an unfolding crisis in Turkey limited. There are, however, several factors which could cloud this picture. An escalation of trade tensions is for example an important risk, as is a sharp slowdown in China and a further sharp weakening of the Chinese yuan. Either would hurt trade and create downward pressure on commodity prices (particularly metals) and emerging market currencies, as well as weighing on the growth of many advanced and emerging economies. Monetary tightening in the US and a stronger US dollar are risks as well. This could hurt investor appetite in broader financial markets, and would affect capital flows to all emerging markets negatively.” FX Street FX Street FXStreet is the leading independent portal dedicated to the Foreign Exchange (Forex) market. It was launched in 2000 and the portal has always been proud of their unyielding commitment to provide objective and unbiased information, to enable their users to take better and more confident decisions. View All Post By FX Street FXStreet News share Read Next USD/JPY drops to lows near 110.80 FX Street 3 years Analysts at ABN AMRO suggest that a recession is on the horizon for Turkey, but the depth of the recession depends on the measures taken and spill-over to other emerging markets is expected to be limited. Key Quotes "The lira down 41% year-to-date USD/TRY rose above 7.2 last Friday, at its peak. Rising tensions between the US and Turkey added fuel to the fire, while measures to halt the fall were seen as insufficient. Since then the lira has recovered somewhat, helped by the announcement this morning that FX swaps will be limited to 25% of banks' equity (previously… Top Forex Brokers All Brokers Sponsored Brokers Broker Benefits Min Deposit Score Visit Broker 1 $100T&Cs Apply 0% Commission and No stamp DutyRegulated by US,UK & International StockCopy Successfull Traders 9.8 Visit Site FreeBets Reviews$100Your capital is at risk.2 T&Cs Apply 9.8 Visit Site FreeBets Reviews$100Your capital is at risk.3 Recommended Broker $100T&Cs Apply No deposit or withdrawal feesTrade major forex pairs such as EUR/USD with leverage up to 30:1 and tight spreads of 0.9 pips Low $100 minimum deposit to open a trading account 9 Visit Site FreeBets ReviewsYour capital is at risk.4 T&Cs Apply Visit Site FreeBets ReviewsYour capital is at risk.5 Recommended Broker $0T&Cs Apply Trade gold, silver, and platinum directly against major currenciesUp to 1:500 leverage for forex trading24/5 customer service by phone and email 9 Visit Site FreeBets ReviewsYour capital is at risk.