Spotlight: Turkish economy struggles amid political uncertainty ahead of referendum

Despite serious assurances given by government authorities, Turkey's once flourishing economy shows signs of weakness ahead of a crucial referendum which would significantly increase President Recep Tayyip Erdogan's powers.

Turkey's economy grew 2.9 percent in 2016, with 3.5 percent in the last quarter, despite negative outlooks by credit rating agencies. Figures have been naturally welcomed by the government.

Speaking at a rally in the capital Ankara on the weekend, Erdogan said the 2.9 percent growth in 2016 is not enough for Turkey, but it is above the estimates of credit rating agencies he criticized in the past.

The data issued by the Turkish Statistical Institute last Friday put Turkey's gross domestic product (GDP) growth at 2.9 percent in 2016, with a per capita income of 10,807 U.S. dollars, lower than government forecasts and significantly lower than the 6.1-percent growth in 2015.

The World Bank forecast Turkey's growth at 2.1 percent for 2016 while rating agency Moody's predicted 2 percent.

But the "Turkish miracle" seems to be something of the past in only less than a decade. Strong economic growth has been one of the main achievements of Erdogan's government which solved the issues of unemployment and poverty.

However, unemployment rate climbed to 13 percent in last December, the highest level in seven years. The inflation rose to nearly 11.3 percent in March, the highest since October 2008. The Turkish lira hit an historic low against the U.S. dollar and euro, putting companies that bet on these currencies in a very difficult spot.

But the lira has managed to stabilize over the last few months after the central bank began tightening policy at the start of the year.

The outlook of Turkey's tourism, a major economic sector, has also never been so bleak. Increased attacks by the Islamic State group and Kurdish rebels drove the country into its worst tourism slump in 2015 and 2016.

Turkish economy is still growing but it is no longer experiencing the production-led growth in the period between 2002 and 2006 with GDP growing more than 10 percent per year.

When Erdogan came to power in early 2003 at the helm of the ruling Justice and Development Party (AKP), he was eager to modernize the country's economy. Foreign investors rushed to Turkish markets and financed projects worth 400 billion U.S. dollars between 2003 and 2012.

Turkey is located in a very vulnerable and complicated neighborhood and some of its problems stem from conflicts in neighbors such as Syria and Iraq. However, it is not the only source of problems, according to experts who point to divisions inside the country.

On April 16, Turks will vote in a referendum that would amend the constitution and change Turkey's traditional parliamentary system to a presidential one and further consolidate Erdogan's powers.

The ballot has polarized Turkey which still faces the aftershock of a failed coup attempt in July 2016.

A state of emergency was imposed following the coup, with some 40,000 detained and over 4,000 companies with a total of assets of 4 billion dollars closed or seized over suspected links with U.S.-exiled cleric Fethullah Gulen that the government accuses of being behind the coup.

Whether the new political system proposed by AKP can provide an answer to Turkey's voters remains a question.

The dominant president, who campaigns for a yes at the tight race, is promising voters that the proposed changes will make decision-making easier and thus boost foreign investment and bring about stability in public debt.

During a TV interview, Deputy Prime Minister Mehmet Simsek said a real leap in growth is expected after the referendum "because the vote is seen as a source of uncertainty, and some investors are adopting a wait and see strategy."

"Especially after the referendum, uncertainties will decline and campaigns we have started in investments, exports and employment will pick up momentum," he noted.

Diplomatic conflicts ahead of the referendum with the European Union, Turkey's main trade partner, where some countries banned Turkish ministers from campaigning among the strong Turkish diaspora, is also not helping the ailing economy.

Analysts predict that the markets' reaction to a yes vote would largely be positive because the Turkish government could then focus on long-awaited reforms in the economy fields.

Enver Erkan, an economist and analyst at Kapital FX, said any outcome of the referendum, whether it's a yes or a no, would be positive in theory for financial markets in terms of ending political uncertainty.

"We would see some normalization and this would yield positive for foreign capital inflows and direct investments which have dropped recently," Erkan told Xinhua.

About the current difficult relations with the EU, Erkan said, if EU leaders react with a suspension of negotiations and talks with Turkey after the referendum, "this will lead to more fragility for the real economy because EU is a major trade partner for Ankara."

On Wednesday, Finance Minister Naci Agbal said growth figures for the last quarter of 2016 were giving hopes for rapid recovery and increase in industrial output in 2017.

"The developments show that 2017 will be a much better year than 2016," he said during an interview with CNNTurk, linking the future of the economy to the outcome of the referendum and predicting a yes. Endit