Turkey election: Erdogan's power hangs in the balance

Elections in Turkey on Sunday could allow the controversial Justice and Development Party (AKP), and its former leader, President Recep Tayyip Erdogan, to consolidate their grip on power—despite the economic and political difficulties facing the country.

However, the AKP has seen a decline in support of late, against a backdrop of a fired-up opposition and a dampened economy. It is still ahead in voter polls cited by Reuters but could fall short of winning an overall majority of seats, muddying the potential outcome of Sunday's vote.

The AKP would need to win at least 276 of parliament's 550 seats to win a ruling majority, but could be thwarted if the pro-Kurdish People's Democratic Party (HDP) crosses the 10 percent threshold needed to enter parliament. This could potentially even force the AKP into a coalition, Reuters noted.

"If we trust opinion polls, it's almost out of the question that AKP will get the majority they need—or whether they will get any majority," Lubomir Mitov, chief economist for Central and Eastern Europe at Unicredit.

Supporters of the AK Party (AKP) flags during an election rally.
BULENT KILIC | AFP | Getty Images
Supporters of the AK Party (AKP) flags during an election rally.

Erdogan: Cure or Curse?

Both the AKP's previous popularity in the polls and its recent slide has been attributed to the polarizing effect of the powerful and controversial Erdogan. The president led the AKP from 2002 until 2014, when he was elected to the non-partisan role of President of the Republic and had to stand down.

The elections on Sunday could make or break Erdogan, who despite presiding over a period of economic prosperity in Turkey, has also been accused of trying to reshape Turkey's founding secular principles, take control the media, police and judiciary. He has also been dogged by allegations of corruption in his party.

Some analysts said that Erdogan wanted the AKP to win enough of a majority in Sunday's election to change the constitution to hand him executive powers.

Mitov added that Erdogan saw himself "like the supreme ruler of Turkey, something like the Sultan in the Ottoman traditions."

He noted that Turkish markets were nervous about the outcome of the election and uncertain over where power would lie afterwards. The Borsa Istanbul 100 index has declined by around 3.7 percent since the start of the year.

"Markets are clearly worried that if the AKP consolidates power from the outside this would be bad for economic policy, and also if Mr Erdogan has a history of meddling in economic policy – especially in the central bank decisions—and that's probably why Turkish markets suffered so strongly this year," Mitov said.

"(But now), markets are looking at who will do a coalition with whom and who will be in charge, and markets are now worried about this."

'Lose-lose election'

Mitov said the vote was "too close to call," while another analyst called it a "lose-lose election."

Nicholas Spiro, head of Spiro Sovereign Strategy, said there was "very little upside in any of the potential outcomes" on Friday.

"Investors face a choice between the devil they know and the devil they don't: Either another single party majority for the increasingly populist and authoritarian AK party (and possibly a large enough one for the AK to amend Turkey's constitution to create an executive-style presidency for the country's autocratic head of state, Recep Tayyip Erdogan) or a fractious coalition government that injects yet more political risk into Turkish assets," Spiro said in a note.

Golden toilet seats?

The AKP presided over a period of unprecedented economic growth in Turkey, which expanding a massive 8.8 percent in 2011, making it one of the fastest-growing major economies at the time.

Like most countries however, it couldn't escape the economic downturn. Since 2012, economic growth has remained below half of the 2011 rate and came in at 2.9 percent last year.

Unemployment remains high at around 11 percent and perhaps in consequence, some voters have become disillusioned for the seemingly opulent lifestyle of AKP officials.

Erdogan himself has come under fire for building a presidential palace in Ankara that has reportedly cost upwards of $615 million. Earlier this week, Erdogan said he was going to sue the leader of the main opposition party for slander over claims the palace has gold-plated toilet seats, which created a media storm.

Lawyers for the president said the claims were "baseless allegations," state media reported. Erdogan invited Kemal Kilicdaroglu, the leader of the Republican People's Party, to inspect the palace, saying he would resign if any golden toilet was found.

—By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld