With summer drawing to a close, Turkey is counting the cost of a tough year that saw a string of terrorist bombings and the fallout from a diplomatic spat with Moscow that cut deep into the country’s crucial tourist trade.
The economic backdrop turned more precarious after an attempted military coup that saw more than 270 people killed, the imposition of a state of emergency and the subsequent arrest and dismissal of thousands of supposed sympathizers.
Tourism, a crucial foreign currency earner for a country in constant need of foreign currency to plug a yawning current account deficit, has borne the brunt of the economic fallout.
That was mainly due to a precipitous 89 percent drop in Russian tourist arrivals after a diplomatic fallout between the two countries brought on by Turkey’s downing of a Russian warplane last year.
Russia was Turkey’s second-largest tourist market, with 4.5 million travelers visiting places like Turkey’s tourism capital, Antalya, in 2014.
With many Russians vacationing elsewhere, Turkey stands to lose between US$8 billion and US$10 billion in tourism revenue by the end of the year, according to Cetin Gurcun, secretary-general of Turkey’s travel agency association, TURSAB.
No amount of deals could fully plug that gap.
“If we consider the volume of the Russian market, it’s not easy to fill the void,” Gurcun told reporters.
Turkey-Russia relations are now back on track, but Gurcun does not expect the Russian market to rebound before next year.
It was not just Russians who have stayed away from Turkey’s beaches and the cultural delights of places such as Istanbul.
British-based Thomas Cook Group PLC recently said that demand for Turkish vacations was “significantly below last year’s level” and that its overall bookings for this year’s summer season were down by 5 percent, largely because of this particular “geopolitical disruption.”
June and July alone saw tourism arrivals plunge an annual 40 and 36 percent respectively.
With fewer tourists, retail sales have suffered.
Sami Kariyo, head of the United Brands Association, an umbrella group representing 150 member firms and 500 brands, said lower tourism numbers have translated into a 5 percent drop in revenue.
Industry suffers, too. The most recent figures showed that industrial production in July fell by almost 5 percent year-on-year, the sharpest fall since the start of the current data series in 2005.
“The coup attempt in July seems to have a very marked negative impact on economic activity,” said William Jackson, senior emerging markets economist with Capital Economics Ltd.
All in all, the Turkish economy has suffered a shock — or series of shocks — and growth forecasts have been revised down.
Turkey is expected to post reasonable growth this year of a little more than 3 percent, down from 4 percent before the attempted coup, according to independent economic forecasters.
That is a big change, especially for a developing economy that has been used to better performance over much of the past 25 years. Living standards could face a squeeze, further exacerbating the uncertainty many feel within the country.
Erhan Aslanoglu, professor of economics at Istanbul’s Piri Reis University, said Turkey’s economy is tough enough to weather the worst of the storm, but it needs more than 4 percent growth to push down unemployment.
Another concern is that foreign investors will look elsewhere if Turkey turns increasingly authoritarian.
Foreign investors are badly needed for the financing of Turkey’s sizable current account deficit, which stood at about 4.5 percent of the country’s annual GDP last year.
The great fear for many is that Turkey is moving toward a more authoritarian model of governance — a trend that could further dent any hopes that the country has of joining the EU.
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