Fitch Solutions has outlined three possible scenarios for upcoming elections in Turkey in June 2023.
With 55.0% probability President Recep Tayyip Erdoǧan is going to secure another term, but Justice and Development Party (AKP) party loses its majority in the legislature. The economic implications in this case are seen as follows:
“We expect the Turkish lira to remain on a depreciation trend in the first six months following the elections after which the currency will stabilize in a historically weak equilibrium. Fiscal policy will remain mostly unchanged from the current approach.”
Another two alternate scenarios were outlined in the report with the 22.5% probability each. According to the first one, the ruling party retains its majority, but perceptions of electoral manipulation undermine the government’s standing. In this case, economic implications would be “the most negative for the Turkish economy even as it means policy continuity”.
In the other scenario, the president and his party both lose, ushering in an opposition-led government that attempts to reinstate more conventional and investor-friendly economic policymaking. The regime change will make markets unstable, “tighter monetary conditions would send the economy into a short-lived recession but as international flows return to Turkey, the economy would return to a stronger growth trajectory. The lira would strengthen over time but will not return to pre-crisis levels”.
