There have been increasing signs that the Turkish economy may be overheating, and with bond yields rising in recent days investors are saying the risk has increased.
Yields on two-year Turkish government bonds were on the rise this week, from 9.38 per cent to about 9.5 per cent yesterday. Partly this is an indication investors want higher rewards for what they perceive to be a greater risk to their capital.
Timothy Ash, the managing director of emerging market research at Royal Bank of Scotland, said concern was back that Turkey was growing too fast on a route that was unsustainable.
"The country's economy is still growing too fast. Investor sentiment seems to have turned. Turkey is currently looking more vulnerable than Hungary, Poland, even the Czech Republic," he said.
Economically sluggish European countries may look across enviously at Turkey's fast-growing GDP, which increased by an average of 9.6per cent year on year in the first three quarters of last year.
But Turkey has two big problems that are worrying investors - a huge current account deficit, and a large and growing oil import bill.
This year the current account deficit swelled to a record total of US$77.2 billion, amounting for 10 per cent of the country's entire GDP. Investors are increasingly concerned about Turkey's ability to finance the gap.
The country relies heavily on short-term borrowing to meet its obligations. If global liquidity tightens following a deterioration in sentiment towards Turkey it could result in huge capital flight. A hard landing for the economy would surely follow.
Compounding this fear is the lack of a back-up in the form of strong domestic savings. The rate fell to 12.7 per cent of GDP in 2010, the lowest rate since 1980, according to a report prepared jointly with Turkey's ministry of development.
Secondly, the price of West Texas crude has risen nearly 7 per cent since the start of the year, raising costs in a country that imports nearly all its energy.
"Every $10 increase in the price of oil costs Turkey $4.5bn to $5bn," said Mr Ash. This bill already amounts to about $50bn annually.
With a seeming inability in Ankara to address the deficit, and concerns about oil supply continuing to push global prices higher, Turkey looks like a growth story to pass on at the moment.
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