Turkey’s economic picture worsening as election approaches

The third quarter of 2015 is ending off and it can be regarded as certain now that we have lived a lost year. Even worse, there is a strong possibility that next year will also be another lost year.

The only way to prevent this is to have an immediate reconciliation right after the Nov. 1 election and form a broad-based and long-term coalition government. No matter what the results of the election are, many believe that a one-party government will not be able to solve Turkey’s major accumulated and deep-rooted issues. 

Alternatively, if the Justice and Development Party (AKP) forms a one-party government there is a possibility that it could move to secure domestic peace and take radical steps to correct the economic picture. But with opinion polls showing a similar distribution as the June 7 election - and also due to certain incorrect attitudes of recent AKP governments - this is not regarded as a high possibility. An AKP one-party government is feared because it may repeat its current mistakes due to its renewed self-esteem.

If you ask whether markets are pessimistic at the moment, the reply may be, in one bank executive’s words, that: “We have to be hopeful. Otherwise even the current bad equilibriums in the economy will not be able to be maintained.” Market players also remember that they hoped common sense would prevail after the June 7 election and a coalition would be formed, but that did not happen. “Despite that, we again have to be hopeful,” they now say.

They are very angry at the government. They are also angry at the Central Bank administration for not being able to act independently, and for insistently making very simple mistakes. But they still want to keep their hopes high.

They do not expect a one-party government to come out of the Nov. 1 election, but this time they see the possibility of a broad-based coalition being formed much higher. If this does not happen, they say that this time “the economy would be heading to a disaster.”  

All data is bad 

What brings “disaster” to mind are the latest economic indicators. As elections approach, it is evident that the economic outlook is getting worse and if a coalition is not formed then the picture would be worse. 

They point out that the dollar exchange rate after the vacation peaked to 3.06 Turkish Liras, and if the Central Bank continues to resist increasing interest rates then this course will continue. At 12 percent, Turkey’s bond yields have reached their highest level since the global economic crisis. 

The deterioration in consumer tendency surveys and the drop in the real sector confidence index indicate that pessimism is spreading. 

Of course, along with all these negative indicators, the approaching U.S. Federal Reserve interest rate increase and China’s ongoing problems also loom large. 

But Turkey, together with Brazil, is clearly facing a starker situation than other countries like itself. We are paying the price of a second election held within a short space of time, and we are also continuing to make both political and economic mistakes. If conciliation is not reached after this election, then it is certain that affairs in the economy will not end well.