Economists still bullish on Turkey, but warn of prolonged protests

Economists remain bullish on Turkey’s prospects after three days of fierce protests, although some warn that a prolonged period of unrest could hit business.

Turkey’s economy is the fastest-growing in Europe, with the per-capita income having tripled to more than $10,000 during the ten-year rule of Prime Minister Recep Tayyip Erdoğan.

That growth trend is set to continue, according to commentators, despite speculation that the widespread demonstrations and a heavy-handed response from security forces could mark the start of a ‘Turkish Spring’.

“These demonstrations seem to be fairly natural in other contexts, such as Spain and Greece. I don’t think they will have any impact on the economy,” said John Sfakianakis, the chief investment strategist of Masic, a Saudi Arabian family investment company. “However, if these are long-lasting events, it could be different.”

Sfakianakis said the fundamentals of the market are solid, with a strong appetite for investment in Turkey.

“I’m very bullish about Turkey in general. The numbers are very optimistic, in the property sector in particular,” he said. “The foreign-direct investment appetite is there. Turkey has managed to grow at phenomenal rates.”

More than 200 demonstrations have been held in 67 cities across Turkey, according to a government official quoted by the Hurriyet newspaper.

Turkish shares fell as much as 8 percent in early trading on Monday, amid investor concerns over the impact of the anti-government protests.

Sfakianakis acknowledged that the unrest may bring some short-term impact on business, but said this did not threaten the wider economy unless the protests continue for some time.

“The short-term losses are an inconvenience to local citizens. If these continue, it could have an impact on tourism,” he said. “But I’m not so concerned.”

Protests erupted in Turkey on Friday, ostensibly sparked by the removal of some trees in Istanbul's Taksim Square, where the government has plans to redevelop the Gezi Park area.

Part of that redevelopment may include a new shopping center, stoking anger among protestors; there are reportedly plans afoot to tear down a nearby working-class neighborhood to build luxury apartments and another mall.

Trevor McFarlane, research director for the Middle East and Africa at Gulfstat, an independent economic research company, said that the protests illustrate a much broader dissatisfaction in the country, which is ruled by Erdoğan’s Islamist-rooted Justice and Development Party.

“It all started off over some trees. But this is more symbolic of the fight against the government,” he told Al Arabiya. “A lot of people were very worried about the creeping Islamization of government policies.”

Some protesters have complained that Erdoğan is becoming too authoritarian, citing measures such as a new law to restrict the consumption of alcohol.

McFarlane said that the protests mark the eruption of tension that has been simmering in Turkey for years.

“None of the issues that the protestors have a problem with have been solved,” he said. “This is something that could cause trouble in the future from a stability point of view.”

More prolonged periods of unrest could have an economic impact, said McFarlane.

“The key issue is at what stage this all stops,” he said. “If this goes into a fourth or fifth day, then we may have a problem. If it goes on, then you don’t need a massive insight to see this may have an impact on business… When investors around the world turn on CNN, then it’s going to be a cause for concern. It’s a cliché, but business and markets hate any instability.”

However, McFarlane said that he expects growth of 3.5 percent in Turkey this year, in a prediction made before the recent protests, and says the economy is still “doing quite well”.

“In reality Turkey’s economic prospects are quite good,” he said. “Would [the protests] deter Gulf investors? I don’t think so, but at the same time they’d probably want to see how this plays out.”

Simon Williams, chief economist for HSBC in the Middle East and North Africa, said that he did not think the protests in Turkey would hit economic ties with the Arabian Gulf region. “It’s a good relationship both for trade and capital flows and one that it strengthening all the time. I doubt whether the events of recent events will impact that,” he told Al Arabiya.

Sfakianakis played down any suggestion that Turkey is going the way of Egypt, where the economy has nosedived since the popular uprising that toppled Hosni Mubarak as president. “Egypt is locked in a quagmire – but I don’t think Turkey is,” he said.

“Egypt is doing everything the wrong way,” Sfakianakis added, saying that the North African country should be focusing on economic changes suggested by the IMF.

The next elections in Turkey will be key to the country’s economic future, Sfakianakis added. The country is due to hold local and presidential elections next year, followed by parliamentary polls in 2015.

“If Erdoğan is reelected, I think international investors will see that in a very positive light… They see him as a bastion of stability,” said Sfakianakis.