Lost in space

TURKEY - Report 11 Apr 2021 by Murat Ucer and Atilla Yesilada

As the tensions in Ukraine escalate, Turkey finds herself in a tenuous position between Ukraine, Russia and the US. Starting with the latter, the Halkbank trial and 24th of April Armenian genocide claims will receive top billing in the coming two weeks. In terms of Russia, Putin’s suspicions of Ankara flirting with Ukraine and the US could delay purchase of badly needed Sputnik V vaccines as well as result in a tourist ban.

Besides the von der Leyen-Gate incident, nothing of substance came out of the Erdogan-EU Leaders’ Summit in Ankara. We expect no substantive progress in economic terms at the EU front.

The detention of 10 retired admirals didn’t suffice to change the national agenda, nor help Erdogan-Bahceli consolidate their voter base. The public remains indifferent to the daily inventions of this duo to divert attention from the raging epidemic and deepening economic distress. Erdogan will soon have to declare a long nation-wide curfew, which will infuriate voters and drastically undermine economic output. At this point, we see a perplexed Erdogan overwhelmed by the numerous policy challenges galloping towards him from all directions.

Cash data showed the budget continued to hold up through March, but the headline figure grossly overstates the true performance. April Survey data from the CBRT reveals the first signs of the macro damage from Agbal sacking.

Fitch released a short statement on the F/X liquidity of the Turkish banking sector, while the IMF published Turkey forecasts for 2021, as part of its World Economic Outlook report/database. We broadly agree with Fitch’s take, though its banking sector liquidity calculation is a bit misleading. As for the IMF, these forecasts are pre-Agbal shock, and hence, will likely be visibly revised.

Looking ahead to the week, we expect the MPC to leave the policy rate unchanged on Thursday. As for the data releases, we forecast the February current account deficit to come in at around $2.5 billion, both broadly in line with the consensus.

Cosmo explains Turkey’s nascent crypto-asset and equity bubbles.

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