Higher energy prices caused by the Middle East conflict could add up to 7 percentage points to Turkey’s inflation this year and reduce economic growth, S&P Global Ratings warned in an analysis published Monday.
The agency estimates that the energy price shock will lower growth in gross domestic product by 0.4 percentage points compared with its projections before the conflict.
Annual average inflation is forecast at 30.9 percent this year and 21.7 percent in 2027, while the economy is expected to grow 3 percent and 3.7 percent, respectively, according to a summary of the analysis published Tuesday by the state-run Anadolu news agency.
S&P described domestic residents’ confidence in the lira as resilient but warned that energy prices staying high for longer posed a risk.
Turkey’s central bank has rebuilt some of its foreign exchange reserves following interventions in March and April, with the recovery partly reflecting an increase in the value of its gold holdings.
Balance of payments risks persist despite the partial recovery in usable reserves, the agency cautioned, referring to risks associated with financing Turkey’s payments abroad.
The assessment also examined an investment fund crisis that erupted in September, finding that it had not triggered a broader loss of confidence in the lira, according to Anadolu’s account.
Forced asset sales associated with the liquidation of about $18 billion in funds had driven a stock market sell-off, but central bank liquidity support and regulatory measures had prevented the disruption from spreading through the financial system.
Money withdrawn from the funds had largely moved into lira bank deposits instead of foreign currencies.
The crisis began when some investment funds, which pool investors’ money to buy shares and other assets, could not meet withdrawal requests amid investigations into suspected market manipulation.
The Capital Markets Board (SPK), Turkey’s securities regulator, ordered the liquidation of 131 funds managed by seven companies on September 17, requiring assets to be sold or distributed to repay investors.
S&P’s stable outlook reflects its assessment that Turkey can withstand the energy shock if policymakers maintain tight monetary and wage-setting policies and avoid further depletion of foreign exchange reserves, according to Anadolu.
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