Turkish consumer confidence perks up, election key to outlook

ISTANBUL - Reuters

CİHAN photo

Turkey’s limp consumer confidence picked up from a six-year low in October, data showed on Oct. 22, but ratings agencies highlighted risks to economic growth from a Nov. 1 election that may produce no outright winner.

Opinion polls suggest the Justice and Development Party (AKP), which has dominated politics for 13 years but lost its parliament majority in June, will again fail to secure enough votes to govern alone and have to form a coalition.

Political uncertainty generated by the inconclusive June vote pushed the consumer confidence index down to 58.52 points in September. The Turkish Statistics Institute (TÜİK) said it has rebounded to 62.78 in October.
With economic growth flagging and government reform efforts stagnating in the current political impasse, Fitch Ratings on Oct. 22 noted the importance of next month’s vote.

“If November’s election led to the formation of a stable government, structural reform and growth could benefit,” it said, while noting opinion polls pointed to a similarly inconclusive outcome.

However it said that despite the “heightened political uncertainty”, commitment to fiscal discipline appeared to command broad political support, with the major parties making only “modest” pre-election spending commitments.

Rival ratings agency Moody’s also touched upon the issue of political uncertainty in a report on Oct. 21 evening on emerging market sovereigns.

“Turkey stands out as most vulnerable to external risks because of its high reliance on external capital and large stock of external debt due annually, combined with heightened political risks,” it said.

Growth slowdown

The AKP’s solid record on economic growth, key to its political success, has been dented by a slowdown in the last three years.

Growth is expected to come in at around 3 percent next year, below the government’s official 4 percent target, and 3.5 percent in 2017, Fitch senior director Paul Gamble told a conference in Istanbul.

Turkey’s Central Bank left interest rates unchanged on Oct. 21 but signaled a tighter policy ahead, with economists expecting higher rates at some point to bolster the weak lira and fight high inflation.

The bank’s latest survey pointed to year-end headline inflation of 8.25 percent, sharply above its 5 percent target.

Fitch’s Gamble said he expected inflation to fall to 6.4 percent in 2016 and 6 percent in 2017.

Fitch last month affirmed its ‘BBB-’ rating on Turkey with a stable outlook. It said on Oct. 22 its credit profile combined high exposure to global market conditions with strong public finances and a record of resilience to recent external shocks.

It said very large external financing requirements that expose Turkey to shifting investor sentiment remain a potential source of risk.

Rising risk appetite towards emerging markets has helped drive a recent recovery in Turkish assets, which have been battered for much of this year. The Turkish Lira, still down 20 percent against the dollar this year, has rebounded to 2.8925 from a record low of 3.0750 on Sept. 24.