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Turkish markets undergo two-month slump

A series of domestic and external risks, coupled with the global surge of the dollar, spur an alarming downturn in the Turkish economy.
A photo illustration taken in Istanbul shows a U.S. 100 dollar banknote against Turkish lira banknotes of various denominations January 7, 2014. Turkey's lira slipped against the U.S. dollar on Wednesday as the government bond yield curve, which had briefly inverted on Tuesday because of speculation about an emergency rate hike to rescue the currency, returned to a positive slope. Picture taken January 7, 2014. REUTERS/Murad Sezer (TURKEY - Tags: BUSINESS) - RTX1761T

Turkey’s economy has been on a downturn over the past two months. Inflation and interest rates are on the rise and growth has slowed, with industrial output almost grinding to a halt. All this is in addition to a slumping stock market and the Turkish lira losing ground against the dollar.

Turkey’s image as a “safe harbor” has been rattled by a series of internal and external factors. Investors have grown anxious over the civil strife in neighboring Iraq and Syria, the Islamic State (IS) threat, the bill of some 1.5 million refugees climbing to $3.5 billion, the decrease in exports to regional countries, preparations for a possible ground operation in Syria and the risk of Turkey entering the war, provocative Kurdish moves in Turkey’s southeast, including the torching of an Ataturk monument and renewed attacks on the army and police, as well as harsh messages from Kurdish rebel commanders that threaten to derail the settlement process. The upcoming reviews of credit rating agencies have further stoked the market jitters.

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