Following yesterday's signing of a new three-year stand-by agreement with the IMF to the tune of USD 10bn, we now also expect a positive decision by the European Council on the uptake of EU accession negotiations with Turkey on Friday. This gives the Turkish economy an additional confidence boost on the international capital markets.
Turkey on verge of EU decision
If the economic picture continues to improve there is a chance that the present large current account deficit will ease back slightly next year. In the medium term such budget and current account deficits are not tenable. Increased consumer confidence is allowing adequate foreign capital to flow into the country for now to finance the current account deficit. However, if fears rise about the budget and current account deficits and hence the risk of sudden capital outflows, Turkey would face substantial problems. Despite the EU perspective, large capital outflows could yet again push Turkey to the brink of a crisis.