The Turkish lira crisis will push the country into a recession in less than a year, according to ratings agency Standard & Poor.
The currency crisis in Turkey has put emerging and European markets on alert for the past two weeks, after US President Donald Trump launched sanctions against the country.
In response, Turkish president Recap Tayyip Erdogan has refused to give in and instead accused America of launching an “attempted economic coup”.
However, the Turkish economy continues to descend into turmoil with the lira falling by 40 percent against the dollar since the start of the year.
On Friday, ratings agencies Standard & Poor and Moody’s downgraded Turkey’s credit rating closer to «junk» status, citing currency fluctuations and concerns over central bank independence.
A spokesman for Standard & Poor said: “The downgrade reflects our expectation that the extreme volatility of the Turkish lira and the resulting projected sharp balance of payments adjustment will undermine Turkey’s economy. We forecast a recession next year.”
Speaking to a crowd of a party activists, Mr Erdogan said: «Today some people are trying to threaten us through the economy, through interest rates, foreign exchange, investment and inflation.
“We are telling them: we’ve seen your games, and we are challenging you.
«We will not surrender to those who act like a strategic partner but make us a strategic target.»
We are telling them: we’ve seen your games, and we are challenging you
Recap Tayyip Erdogan
President Trump imposed the sanctions — including doubling tariffs on aluminium and steel – after Mr Erdogan refuse to release an arrested American pastor.
Andrew Craig Brunson, from North Carolina, faces up to 35 years in jail in Turkey if convicted of espionage and terror-related charges.
Tensions ramped up on Friday when President Trump said Turkey had «in my opinion, acted very, very badly».
European central banks are increasingly concerned about contagion to the Turkish lira crisis, given the level of debt to European banks.
In a shock move, the head of Germany’s Social Democratic Party (SPD), which is in coalition with Angela Merkel’s Christian Democrats (CDU), said her country could prop up Turkey.
Earlier today, Andreas Nahles told German paper Funke Mediengruppe that Mrs Merkel’s government will step in to prop up a crisis-hit Turkey if needed.
She said: «A situation could arise in which Germany must help Turkey, regardless of the political discrepancies with President Erdogan.»
Mrs Nahles said that Turkish President Recep Tayyip Erdogan’s coming visit with Mrs Merkel could see concrete evidence of this support.
Turkish officials say they want to engage the EU, while Mr Erdogan met with French President Emmanuel Macron this week.
