Last Sunday’s local elections – which President Erdogan had more or less upgraded to a referendum on his leadership – resulted instead in a major setback for him. Preliminary results indicate that his ruling AKP-led alliance won a majority of the constituencies but less than in 2014. Crucially, the AKP lost both Ankara and Istanbul to the opposition CHP, a heavy blow to the President. This reflects voter discontent with Erdogan’s economic management, which has resulted in a painful recession, high inflation and surging unemployment (13.5% in December). The AKP announced that it will challenge the results in the two major cities, but this is likely to further deteriorate voter and investor confidence. The latter had already been damaged throughout March as the country’s authorities appear to have used strong interventions to prop up the lira ahead of the elections, which obviously worked neither on the political nor on the economic front (see WERO 27 March 2019 on financial market volatility and losses). In the days following the election, markets have remained volatile. Expect continued political and economic turbulences in the next weeks. In the medium term, Turkey has a rare four-year window before the next elections to focus on a serious reform agenda. However, the election result poses an increased risk that the government may miss this chance and instead opt for short-term quick fixes.
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Weekly Export Risk Outlook 03 APril 2019