From health scare to political crisis
Turkey transitioned directly from health scare and economic distress into a no-holds-barred political brawl, which threatens stability going forward. The sacking of three opposition MPs is a sign of President Erdogan escalating pressure on the opposition, but to what end?
One reason may be the steady decline of AKP-MHP in the polls, and the increasing public attention on Ali Babacan’s DEVA and Ahmet Davutoglu’s Future Parties. Several polls tell a single story: AKP is praised for its handling of COVID-19 epidemic, but failing in economic policy.
Is Turkey, then, headed for a snap election? The quick answer is that it still remains our favored scenario going forward, because we present more evidence on the specter of a second wave of COVID-19 infections, which would presage more bad news for AKP-MHP in the polls.
The CBRT continues to expand money base aggressively, as it also tries to curb the demand for F/X and F/X-denominated assets through various means, a process we watch with extreme unease and find utterly unsustainable.
Manufacturing PMI bounced a bit in May, but it is too soon to celebrate or attribute much meaning to it because that’s what “lockdown economics” is all about.
After running large deficits in March-April, May (cash) budget performance was solid, and markedly better than our estimate, but with economic recovery taking time, unemployment beginning to rise and political landscape heating up further, we very much doubt that this relative discipline can last.
There are a number of important data releases this week. We forecast the April current account deficit at around $4.5 billion, and based on preliminary trade data, we see May deficit at another $3 billion or so.
We introduce our “Turquoise Book” in this weekly report, a very humble and informal attempt to emulate Fed’s Beige Book, which gathers anecdotal evidence from key industries to glean an insight into the future.
Cosmo gives up on being a bear --for a couple of months-- on account of the raging risk-on sentiment abroad. But, remember all good things must come to an end, or be spoiled by the governments.
Now read on...
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