Geopolitical risks, among other factors, are threatening the stability of the global economy and investor confidence towards emerging markets.

The possibility of a worst-case scenario following the Brexit referendum, won by the ‘leave’ camp, sits alongside various other challenges for the global economy, including the risk of a Chinese hard landing, the future of the US economy, the Federal Reserve’s (Fed’s) interest rate policy and weak commodity prices.

The EU’s recovery has not reached the desired levels and the UK’s decision to leave the EU will add a new dimension to existing drawbacks.

On the other hand, Turkey is still offering opportunities to do business compared to neighbouring countries, thanks to its well-established financial institutions, systems and business culture.

The reconciliation process with Russia and Israel is expected to have a positive impact on tourism revenues in particular.

Turkey benefits from lower commodity prices, especially oil; however, its current account deficit has not narrowed as fast as expected. Its economy remains vulnerable to reversals in capital flows as a result of tightening global monetary policies, such as the Fed’s interest-rate hike decision.

Murat Çetinkaya was appointed as the new Governor of the Central Bank as of 19 April, which was the expiry date of Erdem Başçı’s term of office. On 20 April, in the first monetary policy committee meeting chaired by Governor Murat Çetinkaya, the Central Bank cut its overnight lending rate by 50 basis points.

It was expected that the Central Bank would lower benchmark interest rates and move to a single-interest rate system.

Falling inflation and the more stable Turkish Lira (TRY) supported the easing cycle of the Central Bank; however, there is a risk of worsening in those factors for H2 2016 as a consequence of the negative impact of political unrest on the economy.

Turkey needs to accomplish necessary structural reforms and assure political stability in order to boost its potential growth capacity, attract foreign direct investment and reap the benefit of its large domestic market, an expanding middle class and favourable demographics.

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