Voters in Turkey went to the polls in May to choose their president. Incumbent President Erdogan won a close contest 52% to 48%, extending his two-decade long administration for at least another five years.

What does his victory mean for the country, the region and the world?

Here are select insights from our recent podcast episode. These comments have been edited for brevity and clarity and updated to reflect recent developments.

Q: How is it that after an earthquake, after an economic crisis, that Erdogan was able to win re-election?

Jessica Leyland: Erdogan has a very strong history and started off his political career actually strengthening the Turkish economy, preventing political infighting that had plagued Turkish politics for years. Despite the inflation, despite the earthquakes, the older voters, which do make up a big proportion of his voter base, especially in rural areas really backed him in his core constituencies.

He still has strong control and strong support in wide swathes of the country. And I suppose the diversity of the opposition was just not enough to really sell themselves to the people who might have voted otherwise.

Q: Are we expecting that monetary policies are likely to continue on the path that we saw before, which had caused pretty high levels of inflation, or are we expecting something different this time around?

Andrew Birch: The shift in monetary policy following the election has already been more substantial than we had previously anticipated. Erdogan brought new economic leadership into the cabinet and to the central bank. In the weeks following the election, the central bank sharply raised interest rates, removed administrative regulations that had been boosting the value of the lira, and stopped spending down reserves to support the currency.

As the third quarter 2023 begins, lira depreciation remains strong. Although further rate hikes are likely in the July and August policy meetings, the lira losses in May and June will boost inflation levels in June and July once again. The tightening of monetary policy will lead to a stabilization of the lira and a more aggressive reduction of inflation over the final months of 2023, however. Although the May and June instability will raise overall 2023 forecast lira losses and inflation, the stabilization in 2024 will be stronger than expected.

The more aggressive tightening of monetary policy from late June onward will also facilitate a narrowing of the current-account deficit and a more sustained return of net capital inflows, but will impinge on domestic demand growth in late 2023 and throughout 2024.

Q: Talk us through that a little bit. Has Erdogan abandoned his pre-election pledges to sustain his pro-growth policies?

Birch: He has. We always believed that his pre-election talk was largely rhetoric, but the degree and speed at which he allowed the turnaround has been surprising. This switch from pro-growth to stabilization policies as financial crises loom is not unprecedented under his leadership.

Now, the biggest question moving forward is how long Erdogan allows these defensive economic policies. In our current, baseline assumptions, this economic leadership team remains throughout 2024, maintaining defensive monetary policy. However, we presume that they themselves are aware of the tenuous nature of their positions.

Although a more defensive monetary policy will eventually settle markets, the institutional integrity of the central bank remains low - a root problem of the current economic situation in Turkey. Erdogan can quickly and suddenly replace the current economic leadership team, resuming pro-growth policies. This means that while Erdogan may tolerate some economic slowdown associated with more defensive monetary policies, any prolonged downturn would raise risks of a return to pro-growth policies.

Q: You see this interesting walking line that Erdogan is doing between Russia and the West. When it comes to issues like energy, when it comes to issue like food, how is he able to do this, and do we expect any changes now that he's been re-elected?

Leyland: We don't necessarily see any changes to his mediatory and intermediary stance between Russia on the one side and NATO, the US, Europe on the other. He's been able to do this because he's earned trust within the Russian government over recent years, and because he's been able to mediate the food grain deal that came in last year after Russia's invasion of Ukraine, while at the same time providing weapons systems to Ukraine and early on in the conflict denying a request from Russia to permit naval vessels passage through the Bosporus and Dardanelles straits into the Black Sea.

Q: When we're looking ahead, let's say in the next year to two years, what is your forecast for Turkey? Is there one thing that keeps you up at night, or is there one particular change that you expect to see?

Leyland: We're looking ahead to the 2024 municipal elections. We expect that Erdogan is going to seek to polarize Turkish politics even further and erode the opposition stronghold of the left. So we are looking ahead to the 2024 elections, but we see policy continuity.

Birch: Erdogan has proven adept at bridging crises and then riding the wave when global economies recover. Once again, we have seen him take necessary steps to avoid a financial crisis, even if it goes against his prior public pledges. Against tightening policies in the West, Erdogan has had to adapt his policies. However, at the first sign that capital flows to emerging markets is growing again, the risks of policy changes will be high again. Because of Erdogan's unorthodox policies and the country's lack of institutional integrity, Turkey is typically the emerging market that is the most vulnerable to shocks. So when you look across what is hurting most emerging markets, it's hurting Turkey usually at a higher degree.

Listen to the full podcast episode

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.