Türkiye's election results
Why Erdogan could afford a defeat, but not at this scale, and how the construction and banking sectors are affected.
Commercial Summary: Erdogan lost the support of the cities - that is, the commercial elite and the urban poor - and of the civil service. Erdogan has four years - until 2028 - to win these constituencies back. Erdogan had paved the way for this loss by raising interest rates, violating his own position in support of low rates. Higher rates are likely here to stay, negatively impacting the banking and construction sectors. Erdogan will likely pursue more orthodox economic policies until the run up to the 2028 elections, while being very aggressive against the CHP and businesses associated with it.
Election Results Summary: President Erdogan’s Islamist AK Party gained 35.49% of votes in Türkiye’s 31 March municipal elections, while the opposition CHP, which blends left wing ideas, secularism, nationalism and progressivism, won with 37.74%, including key cities such as Istanbul, Ankara and Izmir. The Kurdish DEM Party, the latest incarnation of Kurdish parties, deployed its votes strategically, especially in Istanbul, shoring up the CHP where it had no hope of winning seats for itself. It gained 5.7% of the votes. Erdogan’s allies in the nationalist MHP gained 5% of votes.
Analysis
The elections had a 78% participation rate. This shows that they are quite representative.
The results in the capital, Ankara, are critical - in 2014, the AKP won the election there. In 2019, it lost by 4% points. In 2024, it lost by 30%, holding just 31% of the votes. This suggests that core government staff are against Erdogan at this stage.
That is the single most important take away from the elections. Erdogan has lost the civil service.
Of the top ten cities in Turkiye, Erdogan and his allies only won in Konya and Gazintep. This suggests that Erdogan has also lost the support of the commercial elite and of the urban poor.
In the top five cities, Erdogan and his allies lost by a margin of at least 8% points, at most 30% points, in Ankara.
Unusually, Erdogan has allowed, over the past year, a dramatic rise in interest rates, suggesting that he is actually trying to tame inflation, having used it in the past to boost manufacturing’s production. For more on Erdogan’s economic policies, see here:
Erdogan had previously relied on printing money to win elections. He abandoned his policy and chose to pursue, we believe, positive interest rates. He knew that this would cost him, including possibly an election.
Erdogan campaigned far less aggressively in this election cycle than in any other previous one. We believe that he anticipated a loss, assuming he could afford it. However, a loss of this magnitude is humiliating.
Erdogan has four years before the next elections that matter - the presidential and parliamentary elections of 2028.
Given that this is Erdogan, a maverick, he may use this loss as an opportunity to clean house, and move around centres of power in the AKP or with his other allies in the MHP. Specifically, he may try to win over opposition parties other than the CHP.
Commercial Impact:
Interest rates
Interest rates are at 50%; the IMF expected inflation in Türkiye to be at 46% at the end of the 2024. In March, it was 68.5%. If the IMF’s inflation expectations hold, then Türkiye will have positive real interest rates for the first time in a long time.
Turkish interest rates have gone from 8.5% to 50% in under a year. We expect that this is Turkish policymakers’ goal, and that Türkiye will end up with positive real interest rates. The alternative would be for Türkiye to abandon this policy, meaning that any credibility it has left would be shredded.
By allowing interest rates to rise so dramatically, Erdogan has committed himself to taming inflation. We assess that higher interest rates are here to stay, until inflation drops. Erdogan would hope that this happens well before the 2028 elections.
Even as interest rates rose, inflation kept rising. This may make Erdogan revert to his old views, but, for now, he appears committed. We note that Erdogan is the only decision maker who matters, and that this remains subject to his personal views.
That said, given that Erdogan is not facing pressure from elections for four years, he can continue with such a policy. This will likely have a positive effect on the current account and on Türkiye’s ability to repay its debts on time and in full.
