Will Turkey's negative growth rates lead to political crisis?
Early indicators show that Turkey's economy has begun to contract in the third quarter for the first time since 2009, raising the threat of political consequences for the AKP.
Toward the end of the year, when the time comes to disclose Turkey's growth rate in the third quarter, the Turkish Statistical Institute is expected to announce the country's worst rate for the past 27 quarters. The signs are already there, growing clearer every day. In its latest report on Turkey, the International Monetary Fund has already said the year-end rate would be below 3%, a projection that is likely to be revised further downward.
The growth figure for the third quarter is likely to be negative and around 0.5%, meaning that the Turkish economy is contracting for the first time since mid-2009. Moreover, a series of indicators point to a continued slowdown thereafter. In short, the spring for the Turkish economy is over, and it is transiting to a fall season of an unknown length. Whether the fall will give way to winter or a serious crisis also remains unclear.
Economic growth has been a key booster of popular support for the Justice and Development Party (AKP) since it came to power 14 years ago. The AKP's rise coincided with growth rates reaching 7% in its early years in power. The government managed to overcome the snags of the 2008-2009 global crisis and then crowned its rule with a 9% annual growth in 2010 and 2011. Since then, the economy has been on a slowdown course, with the average growth rate falling to 3% in the 2012-2015 period. For 2016, even the revised target of 3.2% is now beyond reach, and Ankara will likely make do with a rate of about 2.5%. The 4.4% target for next year is an ambitious one and comes with a big question mark.
The latest data on industrial output, industrial turnover and retail sales comes as a strong indication of contraction in the third quarter from July to September, which covers the July 15 coup attempt and its aftershocks. In addition, current account deficit data disclosed last week shows that this chronic problem has begun to worsen again, signaling another negative impact for future growth.
