Forecasts on Turkish economy after elections

Forecasts on Turkish economy after elections
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While some say that Turkey is economically bound to step into a turbulent period regardless of whoever wins in the elections, some say that an opposition win may bring some recovery in terms of foreign investment.

Less than four months to the elections in Turkey, market experts made forecasts about the possible impacts of the election results on the economic situation, which has been dominated by high inflation, a temporarily suspended currency crisis and a foreign debt burden, accompanied by an increasing current account deficit.

In the case of an opposition victory the foreign investors may be won back through a reversal of the low interest rates approach promoted by current president Recep Tayyip Erdogan, Bloomberg said, but that "Turkey's gaping current-account deficit, foreign debt burden and weak reserves point to a grim outlook for the currency, whoever wins."

The Turkish central bank "spent an estimated $108 billion via back-door interventions last year to offset the impact of looser monetary policy, helping make it the least volatile currency in the developing world over the past six months," it noted, adding however that "options are pricing an almost 60% probability that the Turkish currency will slump 25% to a new low of 25 against the dollar by the end of the year."

Emre Peker, Europe director for Eurasia Group, said that Erdogan is likely to remain in power "by overcoming voters' economic concerns," and that the political risk consultancy raised the probability of his re-election to 60% from 55% previously, citing the opposition bloc's failure to present a credible alternative to Erdogan's and his Justice and Development Party's (AKP) two-decade rule.

Cristian Maggio, head of portfolio and ESG strategy at TD Securities, said: "A continuation of Erdogan's rule would almost surely coincide with further deterioration in Turkey’s fundamentals, and eventually result in long-term financial instability."

"Should Erdogan win, there is a reasonable chance the lira may remain stable in the weeks and months following the event," said Paul Greer, a London-based money manager at Fidelity International. "However, macro-economic imbalances will eventually pressurize it to weaken."

Gordon Bowers, a London-based analyst at Columbia Threadneedle Investments, said that if the opposition prevails, higher interest rates and a roadmap for rebuilding foreign-exchange reserves would give investor confidence a boost.

"We've never seen such low foreign investor positioning in Turkish local assets ahead of an election under the Erdogan regime," he said. If a market-friendly opposition comes to power, "the bid to cover Turkey underweights will be immediate and massive."