Failed coup damages Turkey’s economy

The failed coup attempt in Turkey has hit the country’s economy hard, but a quick return to stability may have averted the worst of the negative outcomes

 
 

The unsuccessful military coup in Turkey, which aimed to overthrow President Recep Tayyip Erdoğan’s government, will significantly impact the country’s economy in a number of sectors.

Analysts have warned the attempted coup, which took the lives of 256 people, will jeopardise economic growth, currency, fixed income and equities.

The Turkish lira, which is currently recovering from the steep losses it suffered in the wake of the coup, will be considerably weaker in the short term

HSBC economists said: “The attempted coup in Turkey will likely put pressure on the currency, local rates, equities, and economic performance, but the restoration of government control at home and supportive monetary conditions abroad may cap the downside risk and limit contagion to the rest of emerging markets”, according to Business Insider.

Turkey has been warned that the previous 2.9 percent growth forecast for the economy could be hit due to political uncertainty following the coup, despite the fact it was unsuccessful, in turn damaging public spending. A decline in public spending will directly hit the country’s economic growth, in addition to increasing the risk of an upsurge in Turkey’s political risk premium, which is likely to become an area of concern. Stocks will also suffer, as shown in the past throughout periods of political uncertainty in Turkey, which saw immediate sharp losses.

The Turkish lira, which is currently recovering from the steep losses it suffered in the wake of the coup, will be considerably weaker in the short term. HSBC believes there are “four channels of vulnerability that could impact currency, which include portfolio outflows, the private sector experiencing difficulty rolling over hard currency debt, FX buying by households, and a widening of the current account shortfall”.

The central bank has said it will offer unlimited liquidity to banks, while Deputy Prime Minister Mehmet Şimşek said that the government was in charge and that there was “no need to worry”.

Şimşek, who was due on Sunday to hold a conference call with investors, took to Twitter to reassure those worried about the economic impact: “Our country is returning quickly to normal after this putsch attempt rebuffed by our nation. Our country’s macroeconomic fundamentals remain solid. We are taking all the necessary measures”, he said, according to the Financial Times.

Nevertheless, Turkey’s economy – which is heavily reliant on foreign investment – is unlikely to see a decline in overseas support, thanks to the quick restoration of political stability.