Economy in Turkey Cracking Under Pressure

After recording growth higher than 8% in both 2010 and 2011, the Turkish government expects growth for this year to be less than 4%.

The economy has come under great pressure from the weakened growth in the eurozone and the possible tightening of monetary policy in the U.S., said the finance minister on Wednesday.

However, Mehmet Simsek, the Finance Minister, said he might even have to lower the already lowered growth target. He said that decision by the U.S. Federal Reserve Bank and the conditions in international markets have triggered the risk for another downgrade.

Turkish exports were being hurt by the lack of demand in the eurozone.

Turkey in the region has become one of the area’s economic powerhouses over the last decade following a big financial crisis and rescues by the IMF, but it is extremely sensitive to rapid flows good or bad of foreign capital.

Recently the country has been hit by talk that central banks in not only the U.S. but also elsewhere are tapering off their stimulus programs, raising the fear that investments to Turkey might slow down.

Earlier this week, the central bank in Turkey increased its rate of overnight lending by 0.75% to 7.25% to support its own currency from a foreign capital leaving. The bank however did hold its key rate at 4.5%, which is where it had reduced it to back in May.

The country is currently running a trade deficit that is estimated to be over 6.3% of the entire gross domestic product for 2013.

Last month demonstrations and rioting in Istanbul and other cities in the country created problems for the country’s tourism industry and slowed down interior commerce for the better part of two weeks.

However, things are back to normal and government hopes that changes in monetary policies around the world will not affect Turkey internally.

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