Deteriorating Russian Relationship Hitting Turkey Hard

Market Trends - 30/11/2015

Tensions are still in motion with Russia resorting to the opening shots of an economic conflict with Turkey. Russia imposed a ban on civilians traveling to Turkey, expecting to affect the nation’s tourism business and other far reaching economic sectors including agricultural exports. Russian tourism towards Turkey is estimated to account for about 1.40% of yearly GDP with Russian spending accounting for a substantial share of the Turkish tourism market. Turkey is the most popular foreign tourist destination for Russians, with estimates of 3.30 million people visiting the country within the last 9 months alone, representing over 10.00% of Turkey’s tourism. Currently there are approximately 11,000 Russian tourists in Turkey with plans being implemented to bring them back with an additional 6,000 Russians with reservations for the next few weeks forced to change their plans. Revenues of Turkish tourism this year amounted to $21 billion in the first 9-months, a contraction compared to other years. Turkish tourism as a percentage of GDP is expected to fall to 5.00% in 2015, down from 5.80% in 2014 and 8.00% a year earlier.


The Turkish Government is already running at a deficit with weaker revenue exacerbating the budget shortfall. To reduce the deficit, Turkey imposed restrictions on consumer credit to limit domestic demand, resulting in a slowdown in broader growth. Foreign exchange revenues of Turkey from non-recorded purchases from Russian tourists is higher than $6 billion annually or just over 0.80% of its GDP, as per the Turkish Central Bank. Adding to Turkish exports, the income of its economy, through official channels associated with Russia reached 1.40% of GDP. The Turkish economy is vulnerable to changes in investor sentiment especially as the Federal Reserve is preparing for a rate hike. The Turkish economy had already suffered from conflicts in Syria and the collapse of the truce with the Kurdish militants. The Turkish Lira (TRY) has been the third worst performer this year of all currencies from emerging markets, with this latest debacle adding to the softness. With hostilities unlikely to abate soon, the Lira slide may continue apace with USDTRY hitting new record highs.

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