A large current account deficit, high levels of short-term foreign debt, and low reserves of foreign currency compared to other emerging countries makes Turkey particularly susceptible to capital outflows. As a result, the Turkish lira has hit a new low, falling over 12 percent against the US dollar this year.
In 2012 the economy grew by 2.2 percent, far lower than growth rates in recent years. Growing political unrest, along with growing concern over the conflict in Syria and tapering of the QE program has caused growth rates to slow and the lira to tumble.
Various economic stimulus packages have been introduced since 2009. For example, Turkey cut taxes for three months in the housing, home appliances, and automotive sectors in 2009. However, these measures could not account for external factors like Syria and QE. Turkey was hoping to win the bid for the 2020 Summer Olympics, knowing a win would bring in investments which would help prop up the economy. The bid went to Tokyo, though, and now Turkey will need a new strategy if it plans on recovering what it has lost.
One thing Turkey has not done, unlike many of its other emerging peers, is raise its interest rate. The central bank of Turkey recently repeated its commitment to keep interest rates between 6.75 and 7.75 percent, despite the lira slipping. Instead, the bank hinted that it would use gross forex reserves, as well as the net reserves it has employed until now, to manage forex liquidity. This move has raised questions amongst economists who are left wondering how the bank will support the lira in the face of fears about QE tapering, conflict in Syria, and their large current account deficit, which stands at around 7.1 percent of their GDP.