S&P Global Ratings: Turkish economy can weather the energy shock

S&P Global Ratings reported that the Turkish economy can weather the effects of the Middle East-induced energy price shock, thanks to households' resilient confidence in the Turkish lira and the measures taken by the Central Bank.

According to the analysis published by S&P Global Ratings, households' resilient confidence in the Turkish lira and the decrease in foreign exchange demand enabled the Central Bank of the Republic of Turkey to partially rebuild its foreign exchange reserves. As of September, the share of foreign currency denominated deposits in total bank deposits remained at its level at the beginning of the year, at 38.7 percent.

The repercussions of the fund investigation that started in September and the liquidation of some investment funds remained limited. While mandatory asset sales led to the liquidation of funds worth approximately 18 billion dollars, the CBRT's rapid provision of liquidity and targeted measures prevented financial contagion. The redirection of fund outflows to TRY-denominated deposits indicated that no widespread loss of confidence occurred.

The energy price shock following the war in the Middle East is expected to exert upward pressure on inflation. While inflation is projected to average 30.9 percent this year and 21.7 percent in 2027, it was stated that the economy can weather the shock provided that authorities maintain tight monetary policy.

While this year's growth expectation is assessed at the level of 3 percent, this rate remained 0.4 percentage points below previous forecasts due to the war in the Middle East. Growth is expected to rise to 3.7 percent in 2027. It was projected that the budget deficit will approach 3 percent this year, and the ratio of public debt to GDP will remain below 30 percent.