World Economy

Turkey’s Troubles Multiply

Turkey’s Troubles MultiplyTurkey’s Troubles Multiply

The end to a ceasefire with Kurdish rebels and political uncertainty after inconclusive June elections are compounding already mounting problems for Turkey’s stuttering economy, analysts say.

The resumption of regular attacks by Kurdistan Workers’ Party (PKK) rebels in the southeast of the country as Turkish jets bomb their positions in northern Iraq has brought back memories of the 1990s when the country was often in economic, political and security chaos, AFP reported.

The deterioration of the security situation is already impacting Turkey’s tourism sector, which has boomed in recent years to become one of the sources of the improved economic prosperity under the rule of President Recep Tayyip Erdogan.

Even more disturbing for investors is the specter of political uncertainty, with the country still without a government after inconclusive June 7 polls and snap elections still a possible scenario.

“The resumption of violence with the PKK and the chance of a new election -- which may not unblock the political situation -- will without doubt have an impact on state expenditure and interest rates which will have to go up,” and Inan Demir, chief economist at Finansbank in Istanbul.

The looming risk of early elections “weighs on the investment climate”, he added.

Erdogan repeatedly boasts of presiding over an economic miracle and is now proclaiming a target for Turkey to become one of the world’s top 10 economies by 2023, the 100th anniversary of the foundation of the modern state.

But growth slowed to 2.4% last year while the Turkish lira suffered massive depreciation and the Istanbul stock market has lost 20% in value since the start of the year.

And the government’s growth objective of 4% for 2015 is going to be difficult to reach, according to Demir.

Turkey’s key tourism sector was hoping for new growth this summer, particularly with tour operators expected to shift tourists from Tunisia particularly after the deadly attacks on tourists in the north African country.

But regional instability meant tourist revenues slumped 9% in the first six months of 2015 from the year earlier. Tourism from Russia has been particularly hit as the country battles its own economic crisis.

The negative tendency was also seen in exports, which fell to $73.3 billion from January-July compared with $80 billion in 2014.

Erdogan however seems not unduly worried, describing the situation as one of “transient” nature. “I don’t envisage serious economic difficulties,” he said in comments published this week.