Turkey Politics


Early elections called amidst escalating violence and rising financial volatility

Recent political developments in Turkey and the inevitable downside risks to the economy have prompted our panel of analysts to revise down their growth projections for 2015. Following weeks of unsuccessful coalition negotiations, President Recep Tayyip Erdogan called snap elections on 21 August, paving the way for the country’s second parliamentary election in five months. The previous election, held on 7 June, dealt a significant blow to Prime Minister Ahmet Davutoglu and the governing Justice and Development Party (AKP), which lost the parliamentary majority that it has held since 2002 and fell 18 seats short of a majority government. Moreover, this marked the first hung parliament in over a decade and the first time in Turkey’s history that a government was unable to be formed following an election. The snap election is scheduled to be held on 1 November, however, early polls show that little has changed in recent weeks suggesting that the upcoming vote could lead to another hung parliament.

The continuation in political uncertainty comes at an unfortunate time for Turkey. The country is facing a rapid escalation in violence related to both the Kurdistan Workers’ Party (PKK), a separatist group, and the regional Islamic State of Iraq and the Levant (ISIL) conflict. Military skirmishes between government forces and the PKK have increased in recent weeks, and the escalation ended a two-year-old ceasefire between the groups. At the same time, the government has stepped up its involvement in the ISIL conflict. On top of the military turmoil, Turkish assets have been battered in financial markets during the past few weeks. The lira fell to a record low on 4 September, partly due to the increased political and security concerns, and high frequency economic data remain lackluster.

Collectively, the recent developments pose serious downside risks to Turkey’s economic prospects. The country will be without an effective government until conclusive elections take place and it is unknown whether public opinion will change in such a short time span or if major differences between the parties can be overcome to form a coalition. In addition, there is a narrow chance that elections could be postponed. Turkey’s constitution permits postponing elections for a civil war and some analysts have suggested that if there is a further deterioration in the security situation the government may try to postpone the election.

Against this backdrop, panelists decided to downgrade their growth projections for 2015 by 0.1 percentage points this month. The panel now expects GDP to expand 2.9% this year, before picking up to a 3.3% increase in 2016.

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