Turkey protests a trigger for economic downturn?

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Turkey protests a trigger for economic downturn?

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Turkey’s fast growing economy has been the toast of the financial world, there was a recent vote of confidence with a credit rating upgrade from the agency Moody’s as shares rose.

But even before the protests, questions were being asked about how Ankara would repay its borrowings – at six percent of GDP – and the currency – the lira – was weakening.

The street violence triggered a stock market free-fall and the lira plunged. Economists say if the currency stays weak it will mean higher inflation and interest rates.

The stellar growth of recent years was already flagging. From 9.2 percent in 2010 to 8.5 percent in 2011, then just 2.6 percent last year. The International Monetary Fund predicts 3.4 percent this year.

The economic good times have fuelled a building boom. The government has been accused of being overly construction friendly. Indeed the spark for the protests was a shopping centre project on what is reported to be the only remaining green space in central Istanbul.

Foreign investors have kept pumping money into Turkey because the government has delivered stability and growth.

One analyst said that was no guarantee that the cash would keep flowing. “What we are seeing does not amount to a Turkish Spring,” said Zsolt Papp at Swiss investor UBP.

“But if a market has had a very good run and investors feel its economy is running out of steam, political instability provides the perfect excuse to sell,” added Papp.