Two misconceptions about the elections

There are two major common misconceptions about Sunday?s Turkish general elections, which I, as your friendly neighborhood economist, need to correct.

First, the ruling Justice and Development Party (AKP) may do better than expected. The latest surveys before the ?media ban? went into effect showed the party at 40-42 percent, but recent data have been hinting a slight pickup in economic activity. For example, both purchasing managers? and business channel CNBC-e?s consumer confidence indices for May, which were released this week, rose, albeit from low levels.

Theoretically, the improvement in economic conditions should have been reflected in the latest polls, which are from May as well, but it is quite possible for the AKP to get a last-minute boost of a couple percentage points. After all, Turkish voters respond strongly to economic conditions: The AKP?s worst performance at the polls, after its initial victory back in 2002, was at the 2009 local elections, right when growth hit rock-bottom and unemployment peaked.

This means that the likelihood of the markets? ?goldilocks scenario? may have increased. According to the Wall Street Journal, ?the best scenario, investors say, is for the AKP to secure more than half the seats in the 550-member parliament to form a single-party government, but not the three-fifths majority President Recep Tayyip Erdo?an is seeking in order to write a new constitution that would transfer executive powers to his office from the prime ministry.?

I warned against such optimism in my May 18 column, underlining that there was some chance the AKP could end up with less than 275 seats. Markets noticed that possibility towards the end of the month, which led to a considerable sell-off of Turkish...