Fasten Your Seatbelts!
Instead of a Weekly Update, we are sending a Monthly in a Q&A format today, which we thought would be a better way of addressing some of the questions that might vex your minds.
AKP and MHP finally agreed on the Executive Presidency. There will be a referendum on the subject by May or June, if the Grand Assembly approves the amendment to which we give a 75% probability. President Erdogan is likely to win, but it is not a foregone conclusion.
Ankara recently began to tune down its belligerent rhetoric towards EU. A freeze of accession talks is not likely in the foreseeable future.
The rising threat to stability is the Turko-Persian competition in Iraq and Syria, with a multitude of proxies thrown into the frying pan. We predict that military clashes are a possibility with a 60% probability in 2017. Ankara needs to trim its aspirations in the region and reconcile to a Shia belt to its south to avoid military conflict. Meanwhile, we read as much as we can, but fail to find an upside from Trump Presidency for Ankara.
At home, the purge is annoying the Kurds while cutting into the active workforce. Hit-and-run incidents with the business community undermine morale, but it is not clear what AKP’s strategy is vis-à-vis “dissident” business and media groups.
On the econ side, growth has likely contracted in Q3, q/q, which leaves us with a very weak headline growth rate, y/y – data to be released on December 12th. The year as a whole should close up around 2.5%, we now estimate, markedly lower than the government’s revised forecast (of 3.2%). We see growth staying weak next year as well for a host of cyclical and structural reasons.
The CBRT hiked the O/N lending rate by 25 bps, which was better than what the market had expected, but much less than what is necessary to stem the decline in the lira. The government, on the other hand, has been encouraging Turks to stay away from dollars and the public agencies to voluntary conversions. These interventions are unlikely to be effective in reversing the trend, however, and might compound the uncertainties. We still think a January 2014 replay is the most likely scenario, though admittedly the context is quite a bit different now.
Inflation has been easing somewhat through October, but that should be over now, with the lira weakness gradually feeding into inflation, lifting it to 9%-10% range within the next 6 months or so, though a weaker economy should help to tame it somewhat. The widening in trade deficit appears to have reversed a bit in November, according to the preliminary data, but we should get accustomed to seeing a current account deficit around $35 billion, or 5% of GDP for the foreseeable future.
Now read on...
Register to sample a report