Erdogan’s next trick? make sure he prevents an economic meltdown

Many vulnerabilities

“Any period of respite is unlikely to be sustained,” JPMorgan Chase analysts, including Yarkin Cebeci, wrote in an e-mailed note. “The list of vulnerabilities is a long one.”

An early sign of how Erdogan plans to tackle them could come in the next couple of weeks with the appointment of a new economic team. Deputy prime minister Mehmet Simsek, a former Merrill Lynch analyst who headed the outgoing administration’s economic team, is the name many market-watchers will be looking out for. “If he isn’t kept on, it would send a worrying signal to investors,” said Jason Tuvey, an emerging-market economist at Capital Economics in London.

The government announced a stimulus package worth about $5bn two months before the election, having done something similar in the run-up to a referendum last year. Simsek and finance minister Naci Agbal had signaled that fiscal tightening would come after last weekend’s vote.

‘Not likely’

Turkey is running a budget deficit of about 1.6% of GDP and that’s likely to widen past 2% by year-end, JPMorgan estimates.

In pre-Erdogan Turkey, governments regularly posted much larger shortfalls. Fiscal discipline has been two of the ruling AK Party’s watchwords. Still, spending that’s often directed toward consumption, combined with cheap money at the central bank, has contributed to Turkey’s imbalances in many economists’ eyes — especially to a current-account deficit ratio that’s one of the world’s largest.