Markets in Turkey deteriorating

In the global markets, an opinion has started to form that geopolitical risks are decreasing. While that opinion has been shaped, an optimistic atmosphere has grown and the markets have recovered since last week. The expectation that the abundance of liquidity in the markets will remain for a while (following the weak economic data from the U.S. and Europe) was the most important factor in the recovery of global financial markets. Now, eyes have turned to the statements that FED Chair Janet L. Yellen will make this week. 

However, it is being observed that despite this positive drift in global markets, Turkish markets have negatively disintegrated again. While recovery is seen in other countries, there is deterioration in our domestic markets. Worsening signals in economic data as well as domestic political developments have been effective in the deterioration in the markets.

Following Fitch’s warning assessments last week, in its end-of-week evaluation Moody’s also reported that despite the completion of the presidential elections, political debates had not ended and political risk would continue until the general elections to be held mid-2015. 

In addition, risks in economic data were also highlighted. When some Cabinet ministers reacted to these warnings of Moody’s by saying “we take no notice of Moody’s,” it also strained the markets.

Markets - which know only too well the bitter experiences caused by politicians disregarding criticisms from international ratings agencies in such periods - again started becoming anxious about politicians not taking the necessary decisions. I assume that the stances recently taken by politicians had an effect in the disturbance of markets in Turkey.

However, it should be said that the biggest fear politically is the expectation of a change in the government’s current economy administration. In particular, expectations that Deputy Prime Minister Ali Babacan will not be in the new economy administration are making domestic and international market players uncomfortable.  

Along with Babacan’s departure, it is also feared that certain ruling Justice and Development Party (AKP) executives and Cabinet ministers who have reacted against the markets will be more influential in the new economic management. In other words, it is being feared that the current economic management mentality that has proved its success up to now, will be replaced by a mentality that is against developments in global and domestic markets.

Deterioration in expectation survey

In addition, with the influence of these political developments, economic expectations have also deteriorated, as the results of the Central Bank’s expectation survey issued over the weekend clearly show. Recent data demonstrates that the recovery in the current account deficit has reversed again and exports will be problematic because of the recession in Europe and the regional turmoil. The deterioration of unemployment figures in connection with the slowing down of the economy is also a factor demoralizing the markets.

It can be understood - from the expectations of a worse course in inflation, interest rates, the current account deficit and foreign exchange rates included in the Central Bank’s survey - that a worsening atmosphere is dominant across the entire economy and a risk of disruption in stability has erupted.

In such a critical economic period, signs of change in the management mentality are further disturbing the markets, further encouraging deterioration.