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Turkey Watch
Peter de Bruin +31 20 3435619
Erdogan’s presidential hopes in tatters
8 June 2015
AKP unexpectedly failed to secure a majority,…
…as the pro-Kurdish People’s Democratic Party easily clears the 10% hurdle for parliamentary presentation
Turkish lira dives as coalition talks will be challenging, and there is a chance of a snap election after 45 days
More positively, election outcome will give the central bank some breathing space
AKP unexpectedly failed to secure a majority…
considerably weaker than before the financial crisis, when
According to the latest exit polls, President Erdogan’s AKP has
significantly higher growth rates were the norm. In order to
failed to grab an outright majority in the latest elections. The
achieve stronger growth the savings rate will need to rise,
party captured 40.9% of the vote. This is easily the largest vote
which should bolster investment and exports. This would
share, but falls well short of the 2011 election result when
necessitate tighter monetary policy in the short run that would
49.8% of the votes were seized. As a result, the AKP failed to
would hamper growth even more. It therefore has been a
win the 276 seats needed to form a single-party government
policy that Erdogan’s AKP has been unwilling to support.
(Turkey’s parliament exists of 550 seats).
Growth slower than before the crisis …as the pro-Kurdish People’s Democratic party clears parliamentary threshold
% yoy
12
The loss of the AKP was mostly due to the success of the proKurdish People’s Democratic Party (HDP) which, with 13.1% of the vote, easily cleared the 10% hurdle for parliamentary presentation. It received strong backing from its Kurdish support base, as tensions between the government and the
8 4 0
Kurds have steadily risen over the past time. This reflects the perception among Kurds that Turkey has not done enough to stem the fight of IS against the Kurds in Syria. In addition, in the run up to the elections, the AKP had distanced itself from
-4 -8 1995
1998
2001
2004
2007
2010
2013
2016
the peace process with the PKK and had struck an increasingly nationalistic tone, hoping that it would deter non-
Source: EIU
Kurds for voting for the HDP. MHP most likely coalition power And voters reject Erdogan’s attempts to acquire more
The AKP’s nationalistic rhetoric notwithstanding, nationalist
power…
voters voted for the Nationalist Movement Party (MHP). It
In addition, the HDP has attracted votes from many liberal
secured 16.3% of the votes, up from 13.0% during the last
secular Turks which fear President Erdogan’s ambitions.
general elections. The MHP is the most likely candidate to
Indeed, underlying the change in the political landscape are
form a coalition with the AKP, as the two parties have some
voters’ rejections against Erdogan’s desire to change the
overlap in their support bases, though coalition talks are likely
constitution in order to strengthen the role of the presidency.
to be challenging. Indeed, the main opposition partner, the
This was largely seen as an attempt to reduce checks and
Republican People’s Party (CHP), which secured 25% of the
balances by curtailing the power of the parliament and had
votes, has indicated that it does not want to form a coalition
ignited fears of an increasingly authoritarian president.
with the AKP, as has the HDP. Alternatively, the AKP could form a minority government, or, theoretically, the HDP and
…while the weak economic backdrop is not helping either
CHP could try to form a minority government themselves.
Finally, as usually is the case, support for the incumbent party
According to Turkish law, parties now have 45 days to form a
tends to be less whenever the economic backdrop is weaker.
new government. If they do not succeed within this time frame,
With growth expected to come in at just 3% this year, and the
President Erdogan could call for new elections.
unemployment rate trending gradually upwards, the current economic track record is not much to write home about. It is
2
Turkey Watch – Erdogan’s presidential ho opes in tatters 8 June 2015
Wo orst outcome ffor financial markets,… m
urrently. Howe ever, with P President Erdo ogan’s hopess of cu
The e election outccome clearly marked m the wo orst outcome for
ac chieving an ex xecutive presiddency being on n the back burner
ost fina ancial markets in the short run. r Indeed, the lira lost almo
for now, pressurre on the centraal bank is likely y to abate. Inde eed,
4% % against the d dollar, while the Turkish eq quity market w was
the election outc come raises thhe probability that t the CBRT T will
dow wn by more th han 5%. This reflects r that mo ost investors h had
ates in comingg months. We therefore contiinue hike its policy ra
uld bee en hoping for a an election outcome in which h the AKP wou
to look for 50bp of rate hikes iin the remainder of the yearr, as
win n a majority larg ge enough to form f a single party p governme ent,
the central bank will need to coounter inflation nary pressures,, lira
butt the majority falling short of the 330 seats s needed in
eakness, the current c accountt deficit, and th he possible efffects we
parrliament to p put proposed constitutional changes to a
off the Fed startin ng to tighten poolicy.
refe erendum. With h the AKP no ot having secured an outrig ght ma ajority, investorrs are now braccing themselve es for a period d of
K forecasts forr the economy of Key o Turkey 2 2012
2013
20 014e
2015e
20 016e
GDP (% yoy)
2.1
4.1
2.9
3.0
3.5
CPI inflation (% yoyy)
8.9
7.5
8.9
7.0
6.5
heightened uncertainty during what will be difficult coalitiion ks. talk
Infflation on the e up again du ue to rising fo ood prices,… % yoy
Bu udget balance (% GDP)
-2.1
-1.2
-1.5
-1.5
-1.5
18 8 16 6 14 4 12 2 10 0 8 6 4 2 0
Government debt (% % GDP)
38
37
35
33
32
% GDP) Current account (%
-6.1
-7.9
-6.0
-4.5
-5.5
Gross fixed investm ment (% GDP)
20.3
20.3
19.1
18.8
18.9
Gross national savvings (% GDP)
20.2
20.7
19.1
18.8
18.9
USD/TRY (eop)
1.8
2.1
2.3
2.9
2.9
EU UR/TRY (eop)
2.3
2.9
2.8
2.9
3.3
04
05
06
07
08
09
10
11
Heaadline consumer prrices
12
13
14
15 5
Bu udget b alance, cu urrent acc. for 2014 4,2015 and 2016 are rounded figurres
Food d prices
Sou urce: Thomsons R Reuters Datastream m
…b but glimmer off hope for cen ntral bank How wever, the elecction outcomess provide a glim mmer of hope for the e central bank (CBRT). This is because Prresident Erdog gan has s frequently prressured the ce entral bank to loosen moneta ary policy in order to support th he economy, jeopardising its This has prevvented the ce entral bank fro om independence. T es, something that is necessary in our vie ew, hiking its key rate ornly high inflation that is plaguing Turkkey given the stubbo
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