Politics can hit the already strained economy

Politics can hit the already strained economy

We are entering 2016 talking about 2015’s balance sheet, as well as expectations for the new year. 

Listening to the business world and financial markets let me say that rarely do I come across any who are hopeful.

One of the biggest reasons for that are expectations related to global financial developments, as well as continued tension in society despite a single-party government.

We need to add foreign policy developments, which are becoming much more complicated and challenging, to the equation.

We are talking about risks which, just on their own, can complicate the administration of the economy.

The biggest of those risks will probably be global financial development.

The U.S. Federal Reserve (Fed) made its interest rate hike and a difficult period for emerging markets like us began. The timing of the Fed’s rate hike will determine the level of this difficulty.

As this move by the Fed had been anticipated, countries like us tried to get prepared. But it looks like the Turkish Central Bank has resisted moving despite the Fed’s interest rate hike. 

To understand what the reaction of the markets will be against this stance, we will have to wait until the end of the Christmas holiday season; in other words, the second week of January.

Markets are curious about what will happen after that date.

In my opinion, Turkey’s Central Bank was not successful in its first test of this new period.

We will see what it will do to save the situation moving forward. 

The government’s action plan, which was its first test of the economy, was not made of, as it was said, structural reforms but rather measures that will enable the realization of electoral campaign promises.

We started to hear that some certain things were being done hastily to abide by deadlines. In my view, markets will start to question what is being done and what has changed after a few months.

In the meantime, the 2016 budget that will come to parliament’s agenda is important because we will see where the bill for realized campaign promises will be sent. In other words, the rise in the purchases of the working sector because of a hike in their salaries due to campaign promises will become clearer. Yet with the price hikes and tax increases that will come around, the real hike in salaries will be better understood.

In short, a difficult year is ahead for the administration of the economy.

Terror, foreign policy

It has always been the case, but it looks like political developments in 2016 will also make it much more difficult to manage the economy.

Think about it; terror continues in a rising trend in Turkey’s east and southeast, there is talk about lifting the immunity of parliamentarians of a political party which has a group in parliament and terrorism is spreading towards big cities.

In addition, we will see the bill of the tension with Russia in the coming days of 2016 in a concrete way.

It is not clear what the tension with Iraq will evolve into and whether we will have problems with Iran or not.

However there could be developments, like the possibility of peace in Cyprus, an agreement with Israel and rapprochement with the EU that could boost morale in the economy.

But looking at the list, negative political risks seem to me more numerous.