The U.S. administration announced sanctions on Turkey after the military intervention in Syria, but the measures are more symbolic than binding. The main measure is a trade tariff of 50% on Turkish steel exports towards the U.S.. These tariffs were already implemented from August 2018 to May 2019 as the U.S. administration hiked them from 25% to 50% after a -50% depreciation of the TRY that was seen as a competitive threat. The impact of the recent trade tariff should be quite limited since the U.S. market is only the 5th export destination of Turkish exports (4.9% of total exports). Should the sanctions be broadened by the U.S. or with Europe joining the retaliation, the impact would increase, but mainly through the financial channel, in our view. Turkish vulnerability to capital flow reversals is still quite high since the level of foreign reserves is still well below the short-term external debt level, which leads us to expect renewed depreciation pressures on the TRY. As a result, growth should remain subdued at +2.3% in 2020.
