Roundup: Turkish economy slows down amid increasing risks ahead of elections

Turkish government will face more hardships in spurring its slowing economy amid regional, global uncertainties and domestic political risks that set to increase with upcoming elections in June, Turkish analysts said.

"The income will decline and unemployment will rise. Price instability will also grow," Ugur Civelek, an economist, said while commenting on the low growth.

He asid that making predictions would be difficult on less foreseeability in the economy.

On Tuesday, the government announced that it missed the official growth target in 2014, slowing to 2.9 percent from 4.2 percent in 2013.

The government's revised estimate for 2014 was 3.3 percent although economists were expecting a lower figure than the official data revealed on Tuesday.

Deputy Prime Minister Ali Babacan, who is in charge of the economy, attributed the low growth to global market volatility, geopolitical developments and bad weather, which adversely impacted Turkish exports.

"The largest contribution to the 2.9 percent GDP growth came from net exports, largely from the increase of exports," Seyfettin Gursel, another Turkish economist, said.

Gursel warned that the big threat to economic growth seems to be coming from external demand, because Turkish exports to Russia, Ukraine and the Middle East, particularly to Iraq, declined recently.

"They will continue declining this year," he added.

In fact, the official date on Tuesday showed a troubling sign for Turkey's exports which has been on a declining curve in recent months already.

Turkey's foreign trade volume shrank in February as exports fell six percent and imports dropped 7.2 percent on a monthly basis, the government agency said.

The depreciation of euro against dollar has also taken a toll on Turkish export because the European Union is the largest trading partner of Turkey.

"The EU market, which was the savior of exports in 2014, may not play the same role this year because of the huge depreciation of the euro," Gursel noted.

ELECTION WOES

The low growth may also hamper chances for the ruling Justice and Development Party (AKP) to perform well in the June 7 national elections.

The ruling party's main success stems from the economic improvement it has achieved in the last decade or so.

Another worrying development was the drop in the per capita income in Turkey as the government data showed on Tuesday it declined to 10,400 U.S. dollars in 2014 from 10,822 U.S. dollars in 2013 amid a sharp depreciation in the Turkish lira against the U.S. dollar.

Turkey's gross domestic product (GDP) also fell to 800.1 billion U.S. dollars in 2014 from 823.04 billion U.S. dollars a year ago.

POLITICAL RISKS

The low growth, rising unemployment and decline in exports may exert more pressure on Turkey's central bank to readjust interest rates.

The bank had come under fire by Turkey's President Recep Tayyip Erdogan who wanted to slash interest rates when the economic factors did not warrant the bank to do so.

The interference into the independent decision making process by the bank has prompted concerns among investors while raising the political risks.

Turan Bozkurt, an economist, believed the failure of regulatory bodies in Turkey against the defamation campaign targeting banks has unnecessarily deepened the crisis in the country.

"(Prime Minister Ahmet) Davutoglu's policy of appeasement towards the palace (where Erdogan leads) has indeed cost the nation economically," Bozkurt noted.

The outcry among Turkish businessmen has gotten lauder in recent weeks against the lack of reforms that the government failed to adopt and the blatant interference into economy by the president's office.

Tuncay Ozilhan, the President High Consultation Council of the Turkish Industrialists and Businessmen's Association, which is the largest business club in Turkey, warned on Tuesday that the economy should take priority over political maneuvering.

"The economy should come before politics, should occupy more space on the agenda and needs to be managed better," he said.

"Due to focus on the upcoming elections, the economy has been left without a leader," Ozilhan said.

The consumer spending in Turkey also slowed down, contributing to the sluggish growth. In 2014, the private consumption increased only by 1.3 percent as opposed to 5.1 percent in 2013.

The private investment was also slow, limiting to 0.5 percent increase.

That trend will likely get worse in 2015. Finance Minister Mehmet Simsek admitted that delayed investment and consumption due to financial volatility slowed down growth somewhat in the first quarter of 2015.

Because of low-savings rate, Turkey is overly dependent on credit infusion into the economy.

However, swings in global capital flows amid possible interest rate hike by the Unites States' Federal Reserve expose Turkish economy more vulnerabilities. Endit