The coronavirus is having a significant impact on Turkey’s balance of payments and, while the lira broke through 7/$ today, efforts to defend the currency are far from over. This risks a much larger and sharper adjustment akin to the 2018 currency crisis. Meanwhile, there are encouraging signs across Central Europe that the virus outbreak has been brought under control, particularly in the Czech Republic where the government has relaxed restrictions. This offers some hope that the collapse in activity may be shorter than we’d previously thought. But the recovery still faces major headwinds.
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