Turkish economic confidence tumbled in January, logging its biggest fall on record as security concerns added to worries about rising inflation, data showed yesterday.
The Turkish Statistics Institute said its index of economic confidence fell to 83.88 in January from 100.81 in December. Readings above 100 indicate an optimistic outlook on the economy while those below point to a pessimistic view.
Security concerns have heightened after an Islamic State suicide bomber blew himself up among groups of tourists in the historic centre of Istanbul this month, killing at least 10 Germans. Turkey is also battling Kurdish insurgents in the southeast of the country.
Once a darling of emerging market investors, the country has also lost some of its appeal as the central bank has avoided hiking interest rates even as inflation has gathered pace. That has led to concerns it may be bowing to political pressure to keep rates low.
President Tayyip Erdogan has long argued against high interest rates. The drop in the index was the biggest since the data was first compiled in January 2012. “It’s certainly a worrying trend, and I think it reflects a combination of headwinds. One is the attacks on Istanbul, but more generally it might have been affected by the deterioration in sentiment towards emerging markets,” said William Jackson of Capital Economics in London.
“On top of that, I think there are growing concerns about the inflation outlook. In particular, there seems to be a growing realisation that inflation will remain higher for longer, and that the central bank is unwilling to act to try to tame it.”
Separate data yesterday also showed a slight drop in tourist arrivals for 2015. In the month of December alone, foreign visitors dropped by more than 7% year-on-year, with the number of Russians nearly halving.
In late November, Turkey shot down a Russian aircraft over Syria, leading to a diplomatic and trade standoff with Moscow.
Tourism accounts for 4.5% of Turkish output.
Market reaction was muted to the data, with the lira and stocks both slightly firmer on the day.
Foreign tourists stand next to a street vendor at Sultanahmet square in Istanbul on January 12. Tourism accounts for 4.5% of Turkish output.
