Economy

Erdoğan election blow poses questions for Turkey’s economy

April 2, 2024, 12:40 AM

Supporters of Ekrem İmamoğlu, Istanbul's CHP mayor, celebrate his re-election on March 31

Opposition tops municipal poll
CHP now controls 5 major cities
‘High cost of living’ swayed voters

Turkey’s opposition has dealt the ruling bloc of President Recep Tayyip Erdoğan a resounding blow in municipal elections – a result that could have a significant impact on the country’s economy.

The Republican People’s Party (CHP) won more than 38 percent of the popular vote on March 31, compared to 36 percent for Erdoğan’s Justice and Development Party (AKP).

The CHP now controls Tukey’s five largest cities – Istanbul, Ankara, Izmir, Antalya and Bursa – along with dozens of other municipalities across the country.

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Between them, the five cities account for more than a third of Turkey’s population of 85 million people and 60 percent of the country’s GDP. Istanbul alone accounts for 16 million and 30 percent of those totals, so the elections have given the CHP a significant say in the economic life of the nation.

It is the party’s highest vote share in a local election in three decades, easily surpassing the 25 percent it garnered in last year’s parliamentary election.

Turkey’s markets reacted cautiously to the outcome on Monday, with the main index on the Istanbul Stock Exchange down 1.7 percent in slow trading. The lira continued to edge down, taking its losses to more than 8 percent so far in 2024.

Hours after the polls closed, Turkey’s finance minister, Mehmet Şimşek, said the government’s austerity programme would continue. The strategy aims to rein in inflation, which topped 67 percent in February.

Key to this rebalancing has been curbing consumer spending, with the central bank raising its key lending rate from 8.5 percent in June 2023 to 50 percent in March.

Although there had been some speculation that President Erdoğan might pivot to more populist policies, such as lower interest rates and higher wages and pensions, to woo voters, economist Mustafa Sönmez said the government was likely to stay the course on its austerity programme at least until mid-2025.

President Recep Tayyip Erdoğan poses with supporters on March 31. He is expected to 'stick with' his finance minister and economic programme despite the result — President Recep Tayyip Erdoğan poses with his supporters on March 31. He is expected to ‘stick with’ his finance minister and economic programme despite the election result

“The dominant factor in the election result was the high cost of living,” Sönmez told AGBI.

“However, Erdogan knows he has four years without elections, so he will stick with Şimşek and the current economic programme.”

“There will be a cost because you can’t bring an economy back on course that has been derailed without swallowing a bitter pill.”

Turkey’s March inflation data is due out on April 3 – and expected to show a further rise in the cost of living – so the next instalment of that cost could be about to fall due.