The Turkish lira hit a record low on Monday after Turkey’s ruling party failed to win an overall majority in the country’s parliamentary elections.
The lira fell to 2.81 against the U.S. dollar, about 5% weaker than Friday’s close of 2.66. For much of last month, the lira had been hovering around 2.6, and has tumbled by about 20% against the dollar so far this year, making it one of the worst performing emerging market currencies.
On Sunday, President Recep Tayyip Erdogan’s Justice and Development Party (AKP) won about 41% of the vote, or 259 of the 550 seats up for grabs. The election marks a major shift in power — for the first time since coming to power in 2002, the AKP Party no longer holds an outright majority, and will now likely need to form a coalition with other parties.
Erdogan continues to face an uphill battle with Turkey’s economy, which is now posting dramatically slower growth compared to just a handful of years ago.
First quarter growth figures are due out Wednesday, and economists are expecting around 2% growth compared to last year, down from 2.6% gross domestic product growth in the last quarter of 2014. That’s a far cry from the 9% increase Turkey posted in 2010.
Turkey is also fighting rising inflation — last month, the central bank “hinted that it’s more concerned about the inflation outlook than before,” according to Capital Economics.
And more than 20% of its government debt is denominated in a foreign currency, according to Moody’s — that’s a lot of foreign debt to pay off as the value of its own lira sinks.
Investors have sent Turkish stocks down by over 10% so far this year over growth and political concerns.
Experts say that going forward, Turkey will need painful, longer-term economic reforms, rather than temporary solutions, to shore up its economy.