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The victory of current President Recep Tayyip Erdogan’s AK Party in Turkey’s November parliamentary elections is heralding an era of stability for the country, but structural issues and internal tensions could still affect its economic performance.

The election was called in by the AKP, which refused to settle for a coalition after failing to secure parliamentary majority in the June poll – and it paid off: the president’s party collected 49% of votes, winning 316 seats in the Turkish parliament.

After months of political uncertainty which led the Turkish lira to drop to record lows, the currency rebounded on Monday (November 2) by over 5%, to about 2.76 to the US dollar, as investors regained confidence in the country.

“From an economic point of view, the single-party government was the most market-friendly outcome,” says Seltem Iyigün, Mena economist at Coface.

The insurer has observed short-term positive impacts on the lira, as well as bond yields, which fell around 50bps, and Turkish credit default swaps (CDS), which fell 24bps compared to Friday’s close – to their lowest level since late July.

Coface currently evaluates Turkey’s risk assessment as B, but the end of the political uncertainty could lead to an improvement – but only if the stabilisation of the Turkish lira is followed by better payment performance from corporates, according to Iyigün. She points to structural issues such as import dependence, a consumption-based growth model, high inflation and vulnerability to international capital flows as factors that could still hamper the country’s performance, even in a politically-stable environment.

The result is not important. The important thing is the structure of the economy. Cenk Gütelkin, Bozlu Holding

This opinion is shared by Cenk Gütelkin, finance and risk management assistant manager at Turkish industrial group Bozlu Holding. “In my opinion, the result is not important. The important thing is the structure of the economy. We still have budget and fiscal deficits,” he tells GTR.

He also notes that the decisions of the Turkish Central Bank will be crucial once the US Federal Reserve ends its quantitative easing programme, and expresses concerns that healthy economic policy – which should include rate increases to adapt to a new economic order – could be hampered by an emboldened Erdogan.

In his desire to fuel growth, the president wants to see the central bank cut interest rates – which currently stand at 7.5% – and has been very vocal in his opposition to the governor’s policy.

“In my opinion, [the election result] should be followed by parliament decisions on economic structural issues. Also, [it remains to be seen whether] the decision of the central bank is made freely or under pressure,” Gütelkin adds.

Turkey still has a number of adjustments to make in order to boost its economic performance, including shifting its export model to a more value-added one in order to boost revenue. But most economists agree that November’s result is a step in the right direction, especially as the AKP’s track record since it first came into power in 2002 has generally been business and trade-friendly.

“Confidence is returning as the political uncertainty ends. The single-party government will have larger room than a coalition to address the structural issues of Turkey’s economy. In the long run, steps that the new government will take to address these issues will be significant to Turkey’s economic performance,” concludes Iyigün.