No sign Turkey's economy affected by protests - Fitch

No sign Turkey's economy affected by protests - Fitch
Anti-government demonstrations in Turkey haven’t yet caused any significant economic disruption to put the country’s “BBB” sovereign rating at risk. However, the Fitch ratings agency says persistent unrest effecting the economy could pressure the rating.

The Turkish economy has performed well, inflation has come down, and unemployment in 2012 was at a seven-year low of 9.2 percent, the Fitch rating agency reports.

“Although Turkey’s current account deficit and short-term debt are large, financing has proved resilient throughout the post-Lehman Brothers collapse and the Eurozone crises,” according to Fitch.

“Much will depend on how the authorities respond to the protests,” the rating agency warned.

“Persistent political and social unrest could deter tourism, destabilize short-term capital inflows, and drive up inflation and damage economic growth. Longer-term aspirations to attract more FDI could also suffer a setback. If such developments were to occur and have a material adverse effect on the economy, the unrest could exert pressure on the sovereign rating,” the agency noted.

The Gezi Park protests in Istanbul have spread to the rest of the country and shaken Turkish markets and businesses.  On Thursday the country’s main stock index, the BIST 100, fell more than 7 per cent  and closed 4.7 per cent down. The market fall took Turkey’s stock exchange to 20 per cent below its recent high, the FT reports.

The impact of the demonstrations on the real economy appears to be limited so far. However, further escalation is expected to be especially damaging to the tourism industry. The Turkish economy hinges on the service sector as it makes up 63% of the country's GDP. Turkey is the sixth most popular holiday destination in the world, having attracted 31 million tourists in 2011 and valuing the industry at $30bn, BBC reports.

The turmoil is a new twist for Turkey, which was lauded as an economic powerhouse and democratic exemplar for the rest of the Muslim world during the Arab Spring. Turkey's economic growth has skyrocketed since the early 2000s - around the same time Prime Minister Recep Tayyip Erdogan and his Justice and Development Party (AKP) came to power. Erdogan's government  implemented austerity measures advised by the International Monetary Fund. After that the economy took off, the budget deficit and inflation were tamed, and all loans from the International Monetary Fund were paid off, BusinessWeek reports. 

The country’s per capita income has nearly tripled to over $10,000. Turkey is now the fastest-growing economy in Europe with 2.2% GDP growth in 2012.