The economy seems on a much better footing after Januarys turbulence. Real or a false calm? Please vote in todays poll.



ANKARA Suicide bombings in Istanbul, a row with the Kremlin and hard times for the Russian middle class - all these factors spell trouble for Turkeys tourist industry and its wider economy.

Nowhere is the mood gloomier than among shopkeepers in Istanbul, Turkeys cultural gem and scene last weekend of the second suicide attack on tourists in the city this year.

Theres zero business now, said one clerk at a clothing store near the medieval Galata Tower, a top destination for foreign visitors.

Everyone is nervous, chimed in his friend a few hours after the attack - blamed by the government on Islamic State - which killed three Israelis and an Iranian in Istanbuls most popular shopping district.

Their feeling that business, already bad, can only get worse is understandable. In January, an Islamist militant blew himself up near the fabled Blue Mosque, killing 12 people from Germany - which traditionally accounts for the largest number of visitors to Turkey.

Economists forecast that tourism revenue will tumble by a quarter this year, costing the country around $8 billion.

The risk is that better off tourists such as Germans will choose to take their holidays elsewhere while Russians, Turkish tourisms number two market, will be forced to stay away due to an economic crisis at home and political tensions following Turkeys shooting down of a Russian warplane in November.

Overall visitor numbers to Turkey fell a relatively modest 1.6 percent last year, according to Tourism Ministry data.

But the signs are not good before the May to October peak season, when Turkey usually earns around 70 percent of its tourism revenues.

BIG SPENDERS

Unfortunately for Turkey, tourists from the richest countries, who tend to be the biggest spenders, are also the most easily spooked by security worries.

Security concerns have the biggest impact on high-income tourist groups, who are most likely to change their plans to visit, said Mehmet Besimoglu, an economist at Oyak Investment.

German travel group TUI has reported a 40 percent drop in summer bookings for holidays in Turkey and the picture for Britain, the number three market, is uncertain.

British holiday company Thomas Cook said more of its customers were opting to holiday in Spain, as well as the United States and Cuba. Fewer wanted to go to Turkey, it added.

Altogether Turkey has suffered four suicide bombings this year, bringing the death toll to more than 80. The other two, claimed by an offshoot of the Kurdistan Workers Party (PKK), struck the capital, Ankara, which relatively few tourists visit.

The violence is not new. Islamic State has also been blamed for bomb attacks last year that killed more than 130 people.

While these were in Ankara and near the Syrian border, the effect on tourism - which accounts for about 4.5 percent of the $800 billion economy and provides more than one million jobs - has already been felt.

Last year, for instance, the number of Italians visiting Turkey decreased by 27 percent while Japanese dropped off by nearly 40 percent.

Now, economists say, the drop-off in tourism is so pronounced it could have a broad economic impact. They estimate an $8 billion fall in revenue would knock more than half a percentage point off economic growth, which the government is targeting at 4.5 percent for this year.

With tourism accounting for more than half of Turkeys current account earnings last year, this would also spell trouble for the central banks hopes that the deficit can be brought down from a yawning 4.5 percent of gross domestic product in 2015.

Some economists believe tourism could prove an even bigger drag on the economy. If terrorist attacks continue and things get worse, the impact could be as high as one percentage point being deducted from economic growth, said Muammer Komurcuoglu, economist at Is Invest.

That would be unwelcome news for President Tayyip Erdogan and the ruling AK Party, which is keen to show the economy is on track despite the insecurity.

RUSSIAN CHILL

Prime Minister Ahmet Davutoglu has announced a plan to offer emergency support to the tourism sector, including a 255 million lira ($87 million) grant and a facility to allow firms to restructure their debt. It is unclear whether that will help.

Turkey is no longer able to rely on Russians seeking sunshine and southern beaches as a back-up due to the combined effects of economics and politics.

Middle class Russians have been hit hard by an economic crisis caused by the weak price of oil, the countrys main export earner, and Western sanctions imposed over the Ukraine crisis.

One result has been a dive in the Russian currency which has made foreign holidays, including in Turkey, much more expensive. Two years ago, Russians needed just over 15 roubles to buy a Turkish lira; now they need almost 24.

On top of that has come the chill in relations between Ankara and Moscow. President Vladimir Putin signed a series of punitive economic sanctions against Turkey, including a ban on charter flights, in retaliation for its shooting down of the Russian warplane near the border with Syria.

The biggest impact from the sanctions would be to tourism, the European Bank for Reconstruction and Development has said.

Numbers of Russian tourists declined by nearly a million last year, to 3.6 million. That could get even worse this year, said Ercan Erguzel, an economist at Morgan Stanley.

Based on our talks with sector representatives, we have the impression that number of Russian tourists may even fall to below 1 million in 2016 in the most extreme scenario, he said.

(Additional reporting by Dasha Afanasieva in Istanbul,; Editing by David Dolan and David Stamp)



Ive been periodically making the case that Americans arent really all that angry about the economy, which naturally implies that the economy isnt the reason for Donald Trumps success. This argument has taken several forms. First, in objective terms, the economy is in decent shape. Second, the number of people affected by globalization (lost jobs, reduced wages) isnt that large in absolute terms. Third, polls indicate that concern about the economy isnt especially high by historical standards. And fourth, polls also indicate that overall personal financial comfort is fairly strong.

Over at National Review, Scott Winship makes yet another argument: exit polls dont suggest that Trump is winning an outsize share of voters who say the economy is their #1 issue:

Trump performed no better in states where the economy was the biggest issue than in other states....His average margin of victory was 7.8 points in states where the economy ranked second but just 6.9 points in states where the economy was the top issue....Trump also did worse among voters for whom the economy was a top issue than among other voters. He won voters who chose the economy as their top issue in 10 of 15 states, worse than his showing among voters over all, which he carried in 12 of 15.

Interesting! But theres another way of looking at this: How did Trump do among economy voters compared to his overall performance in each state? If economic anxiety is really driving Trumps ascent, youd expect these voters to support him in large numbers. Heres how that turned out:

Trump actually does slightly worse with voters who are concerned with the economy than he does overall. This is yet more evidence that economic anxiety just isnt a big factor driving Trumps success. The bigger factor, by far, is immigration, and Winship argues persuasively that this is not primarily an economic concern. Its a cultural concern:

For many, it is about national security, as reflected in the draconian suggestion that Muslims be barred from coming to the United States. For others, immigration is simply about the rule of law....For a non-negligible subset of Trump voters, anti-immigration sentiment is about racism and nativism, plain and simple. Many more are uneasy about rapid cultural change....People value ways of life for understandable reasons; when their permanence is thrown in question, it is reasonable for them to be anxious about change.

The rest of Winships piece is an argument about cultural traditionalists vs. cultural cosmopolitans, and your mileage may vary. I dont really buy it, myself: culture-war issues have been front and center for a long time, and its not clear to me that cultural anxieties among conservatives are any more pronounced this year than in the past.

Generally speaking, I dont think any of the issues that pundits talk about are any more pronounced this year than in any other. People arent more angry, or more bigoted, or more scared than usual. Its just that we didnt have a guy like Trump fanning these flames quite so crudely in past elections. This year we do.



In a familiar ritual, all eyes will be on the Fed next month to see if it raises interest rates, after Atlanta Federal Reserve Bank president Dennis Lockhart said he thought conditions looked favorable for an increase. But hold on--let's take two steps back and ask why markets are so obsessed with the Fed's potential quarter-point moves, and while we're at it, why the US economy is still growing slowly and why employment isn't nearly as strong as the 4.9% unemployment rate makes it look. And lest you wonder where I'm going with this, the answer is that leadership failures are the explanation.

We're all fixated on the Fed because monetary policy has become, as Mohamed El-Erian says, the only game in town. (That's the title of his new book.) Governments worldwide have decided that printing money and cutting rates is the pain-free path to economic growth, except it isn't working. Monetary policy has never been more than a temporary fix, and after eight years it has long since run out its string. It isn't working anymore because it can't.

So what's the solution? It's a range of government policies that have always been the foundation of a growing economy but that Washington has been utterly unable to enact. That's the critical leadership failure, and that failure is why monetary policy is the only game in town, and why the economy remains weak. For example, everyone in both parties knows the economy would benefit substantially if US companies could bring back some of the $2 trillion they hold overseas and invest it here. But tax law makes such a move economically crazy for them. Fixing the law would require a broad rewrite of the tax code, which is more than Washington leaders can even approach. So it doesn't happen, and the trillions stay overseas.

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How about something much simpler, like enacting a federal budget? We used to do that regularly. Not anymore. The odds don't look good for this year, even though President Obama and then-House Speaker John Boehner made a budget deal last fall. The reasons for continued inaction are insanely convoluted, but the bottom line is that the government may well be funded by continuing resolutions, short-term funding measures for individual programs or departments. Result: No one affected by the budget, including many businesses, can make long-term plans--another block to investment.