ANKARA: The Turkish government took back the control after the attempted military coup on July 15, but it has imposed a three month state of emergency. Even if the political scenario in Turkey has been unstable since the previous winter when President Tayyip Erdoğan took control of the government by attempting to implement a presidential system, the emergency rule provides the President and cabinet a broad range of political power without taking the Parliament’s consent.
The volatile political scenario affects the Turkish economy through various channels, noted Commerzbank in a research report. The sentiment is expected to be further effected due to uncertainty on policy and domestic security. Also, tourism has been under pressure already because of terrorist attacks and is not expected to rebound under the emergency rule, added Commerzbank. Lastly, longer-term economic prospects are likely to be impacted if the government reacts with “undemocratic” measures in the Western hemisphere.
Given this backdrop, Turkish economy is now expected to grow 3 percent this year and 2.1 percent next year, stated Commerzbank. However, the re-start of exports to Russia from the third quarter, along with the supportive fiscal and monetary policy is expected to underpin growth to certain degree. “The relative high 2016 number results from 4%-plus growth already estimated for H1 2016. Q3 growth, in contrast, is expected to be negative quarter-on-quarter, Q4 is seen to be flat,” according to Commerzbank.
Rating agency S&P has already downgraded Turkey’s sovereign rating to “BB” from “BB+” because of political turmoil. Moody’s is also likely to lower to sun-investment grade. This is likely to trigger market volatility as certain investors would be compelled to sell bonds. Meanwhile, Turkish inflation has been the government’s secondary objective in the recent years. It is now expected to have a minor role under the emergency rule. However, the global inflation cycle is weak and the main driver of Turkey’s inflation had been the depreciation of Turkish lira.
