Terror wave adds to fears for fragile Turkish tourist-dependent economy

Istanbul / AFP

Six suicide attacks in eight months and a spat with Russia have added to concerns for the Turkish economy as tourists flee, taking billions of dollars in spending elsewhere, and foreign investors skirt the troubled country.
Days after a suspected IS extremist blew himself up on a top shopping street in Istanbul, hotels, restaurants and retailers in the city are counting their losses. Shops and restaurants on Istiklal Street, the usually bustling two-kilometre-long pedestrian artery targeted in the March 19 attack, complain of a sharp drop in business since the bombing, which killed four foreigners and injured dozens. The attack on Istiklal — the beating heart of Turkey’s biggest city — emphasised the security threat after three deadly suicide attacks in the capital Ankara.
While financial markets have so far reacted with relative sangfroid to the terror wave, analysts say the bloodshed is putting strain on Turkey which is already battling high inflation and mid-term economic uncertainty.
“There could be large economic costs from these attacks, particularly in terms of long-investment and the tourism sector,” William Jackson, senior emerging markets economist at Capital Economics in London said.

Tourism hit
Western tourist numbers have slowed since Turkey began to come under sustained attack from IS extremists and Kurdish rebels last July.
The industry’s headaches worsened when Turkey shot down a Russian jet on its border with Syria in November, nearly eradicating the key annual influx of Russian tourists.
Hikmet Eraslan, chairman of the upmarket Dosso Dossi hotel chain in Istanbul, said he had been forced to halve room prices to try attract visitors. “We had to let people go to reduce costs. What else can you do? We have to live,” Eraslan said. The recently renovated Golden Age hotel, which lies just a few minutes walk from the scene of Saturday’s blast, is also struggling to fill its 180 rooms, only half of which were occupied this week, mainly by Iranians celebrating Persian New Year.
Inan Demir, an analyst at Turkey’s Finansbank, said he expected tourism revenue to drop under 17 billion dollars in 2016, down from 21 billion in 2015 (3 percent of GDP), worsening Turkey’s already gaping current account deficit and adding to unemployment of over 10 percent.
Foreign arrivals in January were already down 20-percent year-on-year.

Investor confidence shaken
Foreign investors, too, are likely to be “much warier about coming to Turkey, both physically and in terms of their portfolio allocations,” Demir said, predicting “a significant adverse shock to the Turkish economy”.
“When business and legal decisions appear to be politically motivated it is obviously very concerning for foreign investors because it creates uncertainty,” he said.
Yet the economy has also showed signs of resilience, with energy importer Turkey helped by the persistently low price of oil and gas.
Industrial production surprised to the upside with a 5.6 percent increase in January, while economic confidence rose in March after a three-month decline. But there are many pitfalls ahead and Finansbank’s Demir said he believed investors would be closely watching who replaces Turkey’s respect outgoing central bank governor Erdem Basci when his term expires next month.