Turkey's economic confidence index took a record plunge in September, data showed on Tuesday, the starkest evidence yet of the damage political uncertainty and escalating violence have done to its long-term outlook. The index, the broadest measure of sentiment about the economy, tumbled to 70.89 points in September from a revised 85.1 points in August, marking both the largest monthly drop and the lowest level since the statistics institute began compiling the data in January 2012.
It marks an optimistic outlook about the general economy when it is above 100 and indicates a pessimistic outlook when it is below 100. "The fall in the index is driven by lira weakness and political uncertainty," Oyak Invest economist Mehmet Besimoglu said. "Global risks have risen but additionally there is an impasse in domestic politics and in economic reforms," he said.
After years of robust growth, Turkey's economy is now weighed down by political uncertainty ahead of a snap election on November 1. While some investors have been attracted by the country's favourable demographics, political stalemate combined with almost daily clashes between security forces and Kurdish militants following the collapse of cease-fire in July, have unnerved markets and sent the lira currency to a series of record lows. The AK Party founded by President Tayyip Erdogan was deprived of its single-party majority at polls in June, its biggest electoral setback since coming to power in 2002.
It is now set for a re-run of the vote after Prime Minister Ahmet Davutoglu failed to find a junior coalition partner, but investors fear a similar outcome, which would mean continued deadlock.
Data out on Tuesday also showed the tourism sector, a critical export, likely to have suffered from a slow holiday season. Foreign arrivals fell almost 3 percent year-on-year in August to 5.13 million people, according to Tourism Ministry data. Turkey's lira is among the worst performing emerging market currencies this year. It has dropped to a fresh record low of 3.0750 versus the dollar last Thursday, bringing its losses to more than 24 percent.
By 1256 GMT on Tuesday the lira traded at 3.0405 against the dollar, slightly firmer that 3.0463 late on Monday. Turkey's main stock index rose 0.81 percent, to 73,928.46 points. Low market valuations have also played through to firms' capital raising decisions, blamed on Tuesday for the likely delay of the initial public offering of Turkey's main exchange bourse Borsa Istanbul.