geopolitical risk ratings firm

Turkey

FORECASTS OF RISK TO INTERNATIONAL BUSINESS

Turmoil
Financial
Transfer
Direct
Investment
Export
Market
18‑Month: Moderate B- B+ B
Five‑Year: Moderate C B- C+
KEY ECONOMIC FORECASTS

Years
Real GDP
Growth %

Inflation %
Current
Account ($bn)
2010-2014(AVG) 5.4 7.9 -55.89
2015(F) 3.0 7.9 -39.30
2016-2020(F) 4.0 6.0 -58.40

Election Result Points to High Risk of Protracted Instability
Ahead of the parliamentary elections held on June 7, President Recep Tayyip Erdoğan called upon Turkey’s voters to deliver a 400-seat supermajority for his Justice and Development Party (AKP), in furtherance of his goal of revising the constitution to strengthen the powers of the presidency. Instead, the AKP lost the outright majority it has enjoyed since first coming to power in 2001, taking just 258 seats in the 550-member Grand National Assembly (GNA). The result all but guarantees several weeks of intense uncertainty as the AKP enters into negotiations in hopes of forming a majority coalition, and the instability could last months (or even longer) if it fails to do so.
The setback for the AKP is largely the result of strong support for the People’s Democratic Party (HDP), whose leader, Selahattin Demirtaş, took a big gamble by contesting the elections under the party’s banner, rather than running HDP candidates as independents, a strategy that enabled the party to win more than two dozen seats in 2011. If the HDP had failed to win the minimum 10% of the vote required to qualify for representation in the GNA, the party would have won no seats. However, by taking more than 13% of the vote, the HDP claimed 80 seats, which otherwise would have been distributed among the AKP, the Republican People’s Party (CHP), and the Nationalist Movement Party (MHP), the only other parties to clear the threshold.
Ahmet Davutoğlu, who replaced Erdoğan as leader of the AKP shortly after the presidential election in August 2014, resigned on June 9. The AKP must now choose a replacement, who will have 45 days to either form a majority coalition or win confirmation of a minority administration. In the event that neither is a viable option when time runs out, the president will have no choice but to call another election.

                             Forecast Summary

SUMMARY OF 18-MONTH FORECAST

REGIMES & PROBABILITIES
AKP Coalition
40%
Unstable Coalitions
35%
Centrist Coalition
25%
RISK FACTORS CURRENT  
Turmoil Moderate Same MORE SLIGHTLY MORE
Investment
Equity Moderate SLIGHTLY LESS Same Same
Operations Moderate Same SLIGHTLY MORE SLIGHTLY MORE
Taxation Moderate Same Same Same
Repatriation Low Same SLIGHTLY MORE Same
Exchange Moderate Same SLIGHTLY MORE Same
Trade
Tariffs Moderate SLIGHTLY LESS Same SLIGHTLY LESS
Other Barriers Moderate Same Same Same
Payment Delays Moderate Same SLIGHTLY MORE Same
Economic Policy
Expansion Moderate SLIGHTLY MORE MORE MORE
Labor Costs Low SLIGHTLY MORE Same Same
Foreign Debt Moderate SLIGHTLY MORE MORE SLIGHTLY MORE
SUMMARY OF FIVE-YEAR FORECAST

REGIMES & PROBABILITIES
AKP Coalition
40%
Centrist Coalition
35%
Unstable Coalitions
25%
RISK FACTORS BASE  
Turmoil Moderate Same Same SLIGHTLY MORE
Restrictions
   Investment Moderate SLIGHTLY LESS SLIGHTLY LESS SLIGHTLY MORE
   Trade Moderate SLIGHTLY LESS SLIGHTLY LESS Same
Economic Problems
   Domestic High Same SLIGHTLY MORE MORE
   International Very High SLIGHTLY LESS Same Same
   * When present, indicates forecast of a new regime

 

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