Multinationals should expect the Turkish government to constrain domestic demand while allowing gradual lira depreciation for the rest of 2024. Firms will experience tight credit conditions, limiting both business and consumer demand but also constraining cash availability and pressuring receivables. While economic policy continuity will be a positive, inflation will remain high and difficult to manage, keeping cost and talent-war challenges a top priority for senior executives.
Overview
Turkiye completed its local elections on March 31, with a landslide victory for the opposition. The CHP (the main opposition People’s Republican Party) won 37.77% of the countrywide vote, beating the AKP (35.49%), a first ever in the AKP’s history. Not only has the opposition won with a significant margin in Turkiye’s top cities, but it also increased the number of votes under its management. This election outcome has been mainly the result of a protest vote by AKP supporters against economic deterioration. They either voted for the opposition or chose to not go to the polls. Voter turnout was 77%, nearly 10% lower than the general elections of May 2023. Istanbul’s mayor has won a third time against President Recep Tayyip Erdogan’s campaigns and increasingly appears a likely contender for the presidential election in 2028.
Our View
FrontierView previously noted that the result of the elections would not change economic policy, that Finance Minister Mehmet Simsek would remain in power, and efforts to recover Turkiye’s economy would remain on their current tentative track. The lack of elections in the near future further gives the government the opportunity to constrain domestic demand, take the next two years at least to slow the economy, limit fiscal spending, keep tight monetary policy, and allow short-term pain for longer-term economic recovery. In the next 3–6 months, inflation will be extremely difficult to manage. Utility price hikes and—despite promises against them—potential tax hikes are on the horizon. Inflation expectations have not been anchored, and 30% lira depreciation is still to come this year.
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