A six per cent loss in value of its currency, a plunge on the stock market and a downgrade by a key ratings agency.
The last week alone has shown that life is not going to be easy for Turkey’s economy after the coup aimed at unseating president Recep Tayyip Erdogan from power.
But economists say a sharply lower economic performance including a recession is not inevitable and avoiding doom-laden scenarios largely rests on the choices Erdogan and his government make.
Since the coup more than a week ago, the lira lost six per cent of its value against the US dollar. More than 10 per cent in value has been wiped off the stock market.
“Turkey’s ultimate fragility is the fact that it cannot afford to see the currency go where it may,” Michael Harris, Turkey strategist and head of research at Renaissance Capital told AFP.
He said in countries from Britain to South Africa falls in the value of currency mean people would lose money but do not alter the macroeconomic dynamics in a substantial way like in Turkey.
Instead, in a country that has experienced high inflation, a weaker exchange rate risks placing further upward pressure on consumer prices.
The authorities have had some success in pushing down inflation in recent months, reaching 6.57 per cent in May.
“In Turkey if the currency falls too much, it’s very painful for Turkish corporates. And that then leads to the recessionary scenario,” said Harris.
Turkey experienced a banking crisis in the early 1990s and high inflation followed by a full financial crisis in 2000-2001 that nearly sent the economy into meltdown.
For many Turks, the six zeros on a bank note and needing to be lira millionaires to make simple purchases is a painful memory.
Since the ruling Justice and Development Party (AKP) co-founded by Erdogan, came to power in 2002, Turks have grown accustomed to solid GDP growth, outperforming fellow emerging markets excluding India and China.
But that could soon come to an end, said William Jackson, senior emerging markets economist at Capital Economics, warning of a potential recession.
“I think if growth and incomes were to weaken, potentially we can see some rise in non-performing loans and tighter credit conditions,” he told AFP.
“So there are quite a number of factors that could lead to a sharp slowdown in the economy at some point in the next few years – potentially even a recession.”
The economy was set to grow by 3.5 to 4 per cent this year according to the IMF, and so far this year growth has remained robust supported by high government spending and low oil prices.
Externally, however, Turkey has long been vulnerable to any sudden shifts in investor sentiment towards a country which has long run a bloated current account deficit.
This makes it reliant on “hot flows” of capital which could suddenly dry up in the wake of a serious political or economic drama.
A relentless crackdown on suspected coup plotters has sparked concern Erdogan will use the current climate to push through his plan for an executive presidency that would further bolster his powers and also worry investors.
“They (Turkish government) have to make the right policy choices. If it’s just about punishment and stabilisation then we’ll get through this,” Harris said.
“If it’s about the catalyst for trying to become president for life, the transition will be quite turbulent, quite long lasting I would have thought.”
In a huge blow to the claims of the government that business is as usual after the coup, Turkey last week saw Standard and Poor’s (S&P) downgrade its ability to pay back foreign currency debt to BB from BB-plus.
Now experts warn that Moody’s, due to announce its ratings on Turkey next month, could also lower theirs.
But from Erdogan there was no appeal for calm. Instead, he attacked the ratings agency in a speech to parliament on Friday.
“What’s it to you, who do you think you are? You do not have the authority to make such a statement on Turkey.
“But of course they have other reasons. Their statements are utterly political. This stems from hostility towards Turkey.”
It is Erdogan himself who is a risk factor for economists.
Renaissance Capital warned in its research paper on Thursday that if Erdogan moves to “change the electoral landscape to ensure a constitutional majority or lifetime presidency – investors will regret not selling”.
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