At the proverbial fork, at last?

TURKEY - Report 08 Nov 2020 by Murat Ucer and Atilla Yesilada

VERY IMPORTANT NOTE TO OUR READERS: As we were ready to send this report out to NYC for distribution, Minister Berat Albayrak is claimed to have resigned on account of health problems through an Instagram message. News flow is extremely erratic at the moment, and we are currently fact checking, but it is worth citing that Bloomberg (link here) has already confirmed the resignation. Keeping in mind the possibility of a cruel hacking incident, we do not affirm or deny the said resignation, and thus send out our Weekly Report as is. If Albayrak had indeed resigned, we shall update our audience as soon as we have all the facts at hand.

In his brief political essays, the politics author essentially begs for clemency for not knowing what will happen in the next two weeks. Anything can happen, he says, as several major events come to a head. These are the Biden presidency, COVID-19 outbreak and of course, the rate hike decision by the CBRT.

He views these three topics as “rationality tests” for President Erdogan, which in the event of failure could precipitate major political and economic earthquakes. He shall be able to render his view on Turkish politics after a fortnight, once he sees how Erdogan acts, or reacts. Until then, we have no choice but wait.

The economics author has written his thoughts on the replacement of Governor Uysal with the former Finance Minister Agbal yesterday, and hasn’t changed his views, i.e. at the moment, he doesn’t subscribe to the “Agbal-must-mean-a-return-to-orthodoxy-and-therefore-a-bold-rate-hike-soon” view.

The ISO/Markit manufacturing sector PMI edged up again in October, suggesting that growth momentum has yet to weaken visibly, which is crucial for moving the trade/current account decisively to surplus territory. Then again, according to an alternate indicator that uses a similar methodology, the economy is not as strong as the ISO/Markit index suggests.

The budget held up well also in October, somewhat contrary to our expectation, on the back of resilient revenue flows and relative primary spending restraint. But this is all going to look different, we insist, in just a few months’ time, once the favorable impact of the economic rebound on tax collections fade, and new spending pressures emerge.

There are several important data releases this week, one of which is the September balance of payments data. Broadly in line with the consensus, we forecast the September current account deficit (CAD) at around $2.5 billion, with uncertainty over the primary income account (i.e. interest plus investment income) creating risks in both directions. If correct, the 12-month rolling CAD should increase to $28.5 billion, up from $23.2 billion in August.

Cosmo explains the cost of not raising interest rates, which have doubled after Uysal-Agbal swap. In some sense, with this appointment, President Erdogan has accelerated the end. Whether it will be the Happy End, He does not know.

Now read on...

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