Baku, Azerbaijan, Oct. 16
By Aygun Badalova - Trend:
Turkey's MP's possible inability to come to an agreement to create a coaltion causes real risk of need to call fresh elections, William Jackson, Senior Emerging Markets Economist at British economic research and consulting company Capital Economics believes.
"It looks like early election in Turkey, which will be held on Nov. 1 will result in a similar distribution of parliamentary seats as June's election, so the AK Party (Justice and Development Party) will be the single largest party, but without a majority," he told Trend.
"The hope is that this outcome should reinforce in parties' minds the need to form a coalition," he added.
Jackson suspects that one reason why coalition talks broke down before is that the AK Party thought it might be able to win an outright majority, which is likely to prove too optimistic.
"That said, I remain concerned that MPs won't be able to come to an agreement and there's a very real risk that fresh elections will need to be called," Jackson said.
Turkey held parliamentary election June 7, with participation of 20 political parties.
The Justice and Development Party won the election, but lost the parliamentary majority and couldn't form a government alone for the first time since 2002.
Turkish president instructed the AKP leader and acting Prime Minister Ahmet Davutoglu to form the cabinet of ministers July 9. The prime minister held talks with leaders of the three parliamentary parties, but couldn't reach an agreement.
Afterwards, Turkish prime minister said Turkey will repeatedly hold parliamentary election. Turkey will hold early parliamentary election on Nov.1, involving 29 political parties. Over 75 million people will take part in the voting.
Jackson believes that the results of the early parliamentary election in Turkey (assuming the election results in a hung parliament) will reassure investors if parties quickly form a coalition.
"But the longer this takes, the more investors will become concerned. And this could weigh on the lira and equities," Jackson said.
More fundamentally, though, Turkey's economy was struggling even before the last round of elections, and deep-seating, but painful, structural reforms are needed to reinvigorate the economy. It's hard to see those happening with a fragile coalition government, he said.
Jackson believes Turkey's GDP growth may slow to around 1.5 percent next year as inflation rises and monetary policy tightens.
"Things may improve beyond that, but given some of the more structural impediments to growth in Turkey, I think we're likely to see GDP expand by around 2.5 percent a year, much lower than the rates of 4-5 percent seen over the previous decade," Jackson said.