Endless uncertainty in Turkey

Paris, 21/04/17



Manolis Davradakis, 

Senior Economist (non Asia Emerging markets) - R&IS

Political uncertainty to rise even after the 16 April referendum



Key points

  • On 16 April, the Turkish population voted in favour of constitutional amendments giving the President further administrative powers.
  • This result should not surprise: President Erdogan and his AKP party managed to steer Turkey out of the 2001 banking crisis, instil fiscal discipline, reduce poverty, control inflation, lower the influence of the military in politics and render political stability.
  • Yet during the same period, external imbalances widened further, the inflation targets were consistently missed and the corporate sector exhibits now a more negative net open foreign exchange position than ever.
  • Structurally, we believe Turkey is facing serious macroeconomic challenges.
  • In the short run, we consider that uncertainty remains high and the TRY depreciation could deepen even further, with the central bank independence under AKP’s pressure. In a risk scenario of snap elections, external imbalances would be seriously challenged.