Standard Chartered: Tourism has the potential to get TL out the bind, but Ankara to  squander  opportunity

Opportunity, but it may be squandered

The TRY is particularly exposed to the Russia-Ukraine war. Turkey is a heavy oil importer, and higher global commodity prices are exacerbating its already-high inflation at the outset of the conflict. At the same time, higher global yields (as the Fed embarks on its tightening cycle) have made it more difficult for Turkey to attract funding, not least because real rates are sharply negative (at -56%, based on the latest inflation data). The TRY is in a difficult position.

The one saving grace could be a tourism recovery. Tourist arrivals for Q1 bounced back to pre-pandemic levels as Turkey benefits from pent-up global demand.

However, risks remain. Russian tourism has likely slumped (data only goes up to March), denting the potential benefits from a tourist boom this summer.

Meanwhile, current polling indicates a very close presidential election in June 2023.

As a result, unorthodox macro policies will likely continue, perhaps squandering the opportunity tourism may generate.

The one bright spot [in Turkish economy]  is tourist arrivals  with total arrival numbers almost back to pre-pandemic levels in Q1 (although Q1 is much less important seasonally than the summer). Arrivals from most markets have bounced back sharply as Turkey benefits from pent-up global demand for travel.


Turkey’s Slow-Motion Currency Crash


The question going forward (given that the latest data is only through end-March) is whether the likely slump in arrivals from Russia – which normally accounts for 20% of tourism expenditure in Turkey – can be offset by a continued bounce from elsewhere.

We tentatively think the answer is yes. We assume that the improvement in all non-Russian arrivals seen in March 2022 versus March 2019  continues through the summer, and that Russian tourists stop coming to Turkey altogether (i.e., the most pessimistic view for Russian tourists and the most optimistic view for the rest). While the ensuing gap between tourism revenue and oil expenditure is not large (especially as net FX reserves are negative), it is a sharp improvement from the position in 2021.

This improvement gives Turkey an opportunity to avoid a balance-of-payments crisis, which had begun to look likely at the start of the year. This is important, as external-sector stability is the key channel to address price pressures under the Turkish authorities’ ‘New Economic Plan’. The country’s economic managers remain committed to their unorthodox approach despite any clear indication of its potential  benefits.

A key question is whether policies ahead of the June 2023 presidential election will  allow Turkey to take this opportunity, or whether the TRY will once again ‘snatch defeat from the jaws of victory’.

For now, we remain unconvinced that Turkey will seize this opportunity – not least because of the authorities’ purported link between external balances and their economic management techniques. We therefore maintain our USD-TRY forecasts of 20.00 for end-2022 and 28.00 for end-2023.





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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.