Ana sayfa English Edition Elections spiral threatens economy

Elections spiral threatens economy

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In Turkey, and similar countries, election times are often periods when consumption slows down, investment decisions are left to a later time and the budgetary discipline is compromised. That’s why most economic actors don’t like election periods

The desired situation for actors in the economy is to get the elections over with as quickly as possible, which makes the period ahead more foreseeable. However, Turkey’s economy has not been lucky in the recent period in this sense. Elections have been held one after another in the past few years, and that, coupled with the challenges posed by the international environment, have increased the fragility in the economy. Quarterly contraction of the Turkish economy will likely continue with the repeat elections for Istanbul Mayor on 23 June. The most recent data suggest that the contraction in the economy has remained in place, albeit in a reduced manner. In December last year, the contraction in industrial production reached a peak at 9.9 percent, which then slightly improved to 2,2 percent in March. Industrial production contracted by 4.7 percent in the first quarter.

Economic activity suspended
until 23 June election

Economists say that it is quite normal for the industrial production posting a slightly better figure in this period. But experts also say that even in spite of this development, the overall contraction in the GDP might continue into the second quarter. This would mean contraction of the economy in two back-to-back quarters. Normally, the expectation was that a new period of municipal implementations would begin for the next 4.5 years, which also brought along the expectation of recovery. But the decision to repeat the election has turned the focus back on the ballot box, and it also means that a fresh start will be possible only after the repeat election on 23 June. Economists believe that economic decisions including investments, production and consumption, are being delayed in this period.
During this entire process, increasing political tension is likely to increase market uncertainty, which has already caused the dollar rate to rise above 6 TL. While the soaring foreign currency rates reflect negatively on inflation and employment, they also signify that the interest rates on credits will increase further and investment decisions will also be postponed further. All of these factors taken together mean that economic growth will have to wait for another while and that economy will continue its contraction.

When to expect recovery in
growth rates

According to economists, if the election process is completed on June 23, getting on with business will be left to the second half of the year. A cabinet reshuffle is also expected after the election. Expert say that economy-related action will start only after cabinet changes, adding that the summer months are inactive times, and September and October are the months for budgeting and planning out the next year, which means that economic activity will not resume before all.
Experts also forecast that in the third quarter, a degree of growth is possible thanks to positive data expected in the agricultural sector, and this improvement might turn into positive growth in the fourth quarter.
However, economists add a “but” at the end of this forecast, saying that all of this can be possible only if the Istanbul election does not lead to yet a third election and if there are no unexpected regional or global shocks occur.