2016.07.2209:33:00UTC+00Lira Remains Stable Following Declaration of Emergency in Turkey

Turkish Lira remained calm compared with previous days following declaration of emergency in Turkey. Turkey officially declared a three-month emergency on Thursday and various government leaders and deputy prime ministers reiterated the same points that the emergency is meant to quickly filter out coup plotters and the Gulenist network, which may require abrupt closures of institutions and longer than usual detention of suspects.

Use extraordinary measures to achieve stability are likely to further deter fixed investment and capacity addition by manufacturers. Tourists, too, will probably avoid a country in a state of emergency.

Positioning in Turkey has been reduced compared with early 2013 and its recent increased political predictability could see emerging market investors shift further out of Turkey. Although foreign investment increased 36 percent y/y in 2015 to US$16.5 billion (UNCTAD), figures for this year will be less impressive and far below the high water mark of $22 billion registered in 2007. Turkey still runs a relatively large current account deficit of around 4% of GDP and hence is in need of capital inflows.

"Less fixed investment and less tourism revenue make us lower our 2016 GDP growth forecast from 3.5% to 3% and the 2017 growth forecast from 2.5% to 2.1%; we now forecast negative quarter-on-quarter change in Q3 2016 compared with an earlier forecast of 0.5% q/q increase," said Commerzbank in a report.