Turkey: Erdogan has cemented his grip on power - now what about the economy?
24 June marked the culmination of President Recep Tayyip Erdogan’s long-held ambition: to become the most powerful Turkish leader since Atatürk, the man who founded the Republic of Turkey almost a century ago. His crushing victory in presidential and parliamentary elections ushers in a new chapter in the country’s history, cementing the shift to a presidential system of government which will place unprecedented power into the hands of one man. Erdogan will now be able to rule by decree, appoint ministers and senior judges, dissolve parliament and declare a state of emergency. In short, the levers of state are his to command.
But he will not have things all his own way. With parliament’s voice muted, the markets are likely to play the role of the opposition, ensuring a certain check on the executive’s authority. And all signs suggest that this opposition will be tenacious. Markets flexed their muscles in late May, when Erdogan finally bowed to international pressure and allowed the Central Bank to hike rates following a sudden currency rout. Despite the tighter monetary stance, the lira is still among the worlds’ worst-performing currencies so far this year, shedding around 20% of its value as investors becoming increasingly concerned that the ongoing hefty dose of government fiscal stimulus is leading to overheating.
The elections may have cleared the political fog. But economic uncertainties are manifold, particularly surrounding the future direction of fiscal and monetary policy and the evolution of the lira. The current account deficit has ballooned over the last 12 months, and inflation now stands at over 15%. Confidence in the economic management team—once regarded as one of the most competent among developing countries—has been badly shaken. To discuss these issues, and what the future holds for the Turkish economy, we spoke to Zeynep Kosereisoglu of Frontier Strategy Group.
Zeynep Kosereisoglu is Practice Leader for Turkey and MENA at Frontier Strategy Group. She writes regular reports on Turkey and MENA, guiding senior executives filter through and adjust to the ongoing political and economic developments in the region. Previously, having written for the online analysis platform Muftah, Zeynep has also worked with multiple research organizations including International Strategic Research Organization in Turkey, Research Turkey and Center for Turkey Studies in London. Her previous work looked at democratization struggles in Turkey and the Middle East as well as the legal and economic transformations in the region. She has an MA in Middle East Studies from the School of Oriental and African Studies and an MA in International Relations and Middle East Studies from the University of St. Andrews. She speaks English, Turkish, Spanish and Arabic.
What does the victory for Erdogan mean for the county’s fiscal policy? Will Erdogan now adopt a less expansive stance?
FSG does expect fiscal policy to tighten in H2 2018. This will be done to compensate for the over-expenditure in H1 2018 and to stabilize the economy. However, while direct expenditures may slow, the increasing utilization of investment incentives and tax breaks will continue to put pressure on the budget revenues, and complicate plans to hit 2018 budget deficit targets. Current uncertainty around the economic policy orientation of the new Minister of Treasury and Finance, Berat Albayrak, and the fact that Turkey will have local elections in March 2019 or earlier, may limit the pace of fiscal tightening in the coming months.
Do you see Erdogan giving the Central Bank complete freedom regarding monetary policy, or will he be tempted to intervene?
In the short term, the central bank will likely be able to raise interest rates in case of lira depreciation, similar to what was seen in May 2018. The impetus to stabilize the lira is even stronger now, as the government will want to confirm the economic benefits of the election results. However, as seen in June, the ability to increase interest rates will not be sufficient to protect the lira. If the government's foreign and economic policy rhetoric remains controversial, this is likely to exacerbate the lira's volatility.
Meanwhile in the medium term, the new governing system increases presidential oversight of economic and monetary policy making. For example, the president will have the power to directly appoint and remove the governor of the central bank, potentially increasing the direct and indirect influence the presidential office will have on monetary policy.
Is the direction of economic policy likely to change following the election? If so, how?
The government will clearly have more political room, fewer electoral concerns, and a faster decision-making structure to be able to implement its key economic reform plans. Thus, rather than a big change in policy direction, we expect the government to further focus on implementing its existing economic plans. These mainly focus on increasing high value-added manufacturing and energy efficiency, improving the structural inefficiencies of the agricultural and wholesale/retail supply chain that push up food prices, further expanding the country's export capacity and maintaining public capital expenditures and public private partnerships to expand infrastructure. Further concrete details of the new economic plan will be released next year with the announcement of the five-year development plan for 2019–2023.
The MHP is needed to ensure the AKP has a majority in parliament. Do you see the MHP asking for any concessions in exchange for parliamentary support? Is the MHP likely to significantly influence the government’s policy direction?
Rather than economic policymaking, the main effect of MHP is likely to be on AKP's political rhetoric. In order to appease the MHP, but also to prevent support from AKP shifting towards the MHP, the AKP and the President are likely to maintain a strong nationalist rhetoric. This strengthening nationalist rhetoric is driving the government's military interventions into Syria and lately Iraq, bold and controversial statements such as plans for non-compliance with US sanctions on Iran*, willingness to increase defence independence and purchase arms from Russia, etc. All of these of course influence risk perceptions about Turkey, putting pressure on the lira.
*We believe the level of dependence of the Turkish banking sector on European and American financial systems will mean Turkey will have to comply with sanctions; however, this doesn't prevent bold statements from being made by President Erdogan and other government officials.
How do you see Erdogan using the substantial new executive powers at his disposal? Does the move towards a presidential system with fewer checks and balances increase political risk?
From an economic perspective, the most critical short-term implication to watch will be how public sector institutions shift and adjust to the new regime. Many committees, institutions, etc. will be consolidated to adjust to a more centralized system; however due to the announcement of early elections, not all institutions are fully prepared for the potential changes in their structure. How the public sector deals with this transition period, how quickly key decision makers are clarified and the effectiveness of policy implementation will be critical in granting confidence to the private sector and stimulating investments.
5-year economic forecasts for 127 countries & 30 commodities.
Author: Oliver Reynolds, Economist
Date: July 10, 2018
TagsGermanyAfricaPortugalprecious metalsTradeVietnamoil pricesVenezuelaSpainBase Metals CommoditiesEuro AreaUKAustraliaOilConsensus ForecastInfographicEuropean UnionAsiaChinaArgentinaForexEnergy CommoditiesUnemployment rateEastern EuropeHealthcareJapanUkraineSouth AfricaRussiaInvestmentTPPMajor EconomiesTunisiaGreeceBitcoinColombiaEconomic Growth (GDP)BrazilFranceIMFIndiaExchange RateBrexitBanking SectorHousing MarketNordic EconomiesPrecious Metals CommoditiesMexicoIranGoldTurkeyUSAInflationEmerging MarketsCommoditiesLatin AmericaMENAItalyUnited KingdomOPECCryptocurrencyG7CanadaEurozoneAgricultural CommoditiesCompany NewsUnited StatesSub-Saharan Africa
2 hours ago
2 hours ago
Base metal prices are seen rising 5.9% year-on-year in Q4 2019 (previous month: +6.2% yoy). Read more: https://t.co/KlgaC9IbxP
16 hours ago
17 hours ago
17 hours ago
- Brexit Scenarios: Consensus of 14 Economic Analysts
- Sweden just formed a new government and approved its 2019 budget: what does it mean for the economy?
- Which countries have the highest public debt levels?
- Predictions for the global economy in 2019 from 13 experts
- Gurdgiev: Predictions for the global economy in 2019
- Daniel Lacalle's ideas for 2019: Change of cycle.
- Vietnam Poised to Profit from Free Trade Agreement Opportunities
- Canada in 2019: Interview with a Top Economic Forecaster
- Pound Sterling 2019 Exchange Rate: Projections from Leading Analysts
- Expectations for Latin America’s Economy in 2019
- Ethiopia and Rwanda: From Destruction to Development
- Key commodities trends to look out for in 2019
- What drove Gulf neighbors to bail out Bahrain?
- The Four Financial Bubbles and Their Impact on the U.S. Economy
- The Poorest Countries in the World
- Italy: The sick man of Europe
- What does Bolsonaro's presidential win mean for Brazil's economic outlook?
- The World's Top 10 Largest Economies
- In Latin America, taxpayers are tapped to shoulder the burden of a bank bailout
- How and when will the next financial crisis happen? - 26 experts weigh in
- China and Africa: A partnership under the spotlight
- The conditions are ripe for a Global Financial Crisis 2.0
- Uncertainty, instability and fear haunt a generation of Argentinians
- 5 things: What to expect for Mexico's economy in 2019
- 5 things: Brazil's economic downturn and what to expect going forward
- Emerging Market Currency Crisis: Everything you need to know
- Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
- 75 Top Economics Influencers to Follow
- Emerging Markets Economic Outlook 2018 and 2019
- The Faces Behind Latin America’s Key Institutions
- 2019 Economic Outlook for the Top Oil Producing Countries
- Is your cup of coffee about to get more expensive going in to 2019?
- The Economic Implications of an Aging Global Population
- Can the Wisdom of the Crowds predict the results of the 2018 World Cup?
- Railway Mania: The Largest Speculative Bubble You’ve Never Heard Of
- From Riches to Rags: Have Cryptocurrencies Crashed for Good?
- Investment looks to Latin America, but forecasts are not encouraging
- Turkey: Erdogan has cemented his grip on power - now what about the economy?
- How can Latin America’s business environment benefit from technological change?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- Latin America moves toward increased integration as U.S. protectionism grows
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Gold: The Most Precious of Metals (Part 3)
- Venezuela's Electoral Conundrum
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit