Turkey’s financial markets were initially badly spooked by the political situation on Thursday.
The first reaction was a drop in share prices by the most in five months and an increase in the amount of interest on Turkey’s government bonds.
Then as investors learned more details and assessed the effects on the economy market fears eased and stocks pared their losses and the main Istanbul index ended the day down 0.8 percent.
But nervousness persists; ATA Finance Group’s CEO Murat Demirel said: “It would be misleading to look at the turmoil and take decisions for the short and long term. So we have to wait for things to calm down to understand the situation.”
The Turkish lira regained some of the value it initially lost against other currencies, but the prime minister’s departure raises questions about the government’s ability to tackle slowing economic growth and to get passed into law the structural reforms that many investors see as necessary.
“The resurfacing of political risk on investors’ radar serves as a reminder that the longer-term outlook for the Turkish economy is not as rosy as some seem to think,” said William Jackson, an economist at Capital Economics in London.
“If we do get a stronger President Erdogan, the macroeconomic consequences might take longer to become visible, but it would probably result in a scenario of more volatile, and slower, growth.”