A battle of alliances

TURKEY - Report 06 May 2018 by Murat Ucer and Atilla Yesilada

With three leading opposition parties forging an electoral alliance, general elections turn into a proportional representation race, where AKP-MHP’s advantages are significantly eroded. A few polls that collect data on alliance basis suggest the lead of AKP-MHP has narrowed or might have even disappeared. We explain why daily unveiling of pork-barreling packages might not help reverse the tide of negative voter opinion.

On the other hand, we find no quantitative evidence of any of the 4 rivals beating Erdogan in the presidential contest. Readers ought to seriously contemplate the implications of the “Divided Ankara” scenario, post-elections.

Various credible news sources herald the US Congress being poised to slap sanctions on Turkey in retaliation for the detention of Pastor Andrew Brunson and the purchase of S-400s. S&P surmises Hakan Atilla case, too, might result in sanctions of Turkish financial and corporate entities, which will complicate improving economic conditions, as well as AKP-MHP’s chances in elections.

Last week’s reports from the IMF and S&P more or less carry the same warning: focus on imbalances or brace for the heightened risk of a hard landing. But the government is in no mood to heed such advice, as it desperately and haphazardly continues its pork-barreling activities, introducing new measures and amnesties almost every other day.

The overall manufacturing PMI index slipped into contractionary territory in April, after falling sharply in March. The cumulative drop in the two months combined, amounted to almost 7 percentage points, which corresponds to the steepest two-month decline since the GFC. Meanwhile, the 12-month rolling trade deficit widened in March – and in April too, the latter according to the preliminary data -- but the pace of widening is slowing.

Heightened market volatility and lira weakness of the past week led to expectations that the CBRT may hold an emergency meeting in order to halt lira’s decline. We do not see the CBRT acting as early as this week, but every day counts. Should the pressures continue at this pace, we don’t see how it can afford to wait till the next MPC meeting (of June 7th), either.

Cosmo explains in lurid detail why AKP can’t stop stimulating the economy until March 2019 elections, which will further undermine TL assets.

Now read on...

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