No rest for the weary
The politics section starts with our suspicions that Ministry of Health may be underreporting COVID-19 cases, which, of course, is only a suspicion, but if true, it has very significant and negative repercussions for the economy, and public trust more broadly.
Beyond COVID-19, we have articulated our political thesis for the imminent future in our recent reports: Heated rhetoric and fierce struggle, but little to change Turkey’s risk premium in August. The only event which may increase Turkey’s risk premium since our last writing might be the battle of Sirte, in Libya, which may draw in Egypt and the UAE. We are more concerned about the backlash at home than the outcome of the battle, though.
Reconversion of Hagia Sophia is the tip of the iceberg of President Erdogan’s new strategy, we venture. Erdogan intends to use Islamic symbolism to keep his flock loyal, while conjuring up new ways to preserve his party’s control over media and drive apart the Nation Alliance (of CHP, IYIP and HDP). We conclude that Erdogan is neglecting pressing health and economic concerns while doing so, which is unlikely to gain him any votes.
We still stick to our political scenario of early elections but since these are unlikely to take place before the final quarter of this year at the earliest, we defer a deeper analysis to our August Quarterly Report.
In the economics section, we ask 10 questions on the state of Turkish macro, and provide some very quick answers.
Growth is rebounding but the future is fraught with uncertainties, making the “V-shape recovery” talk, we insist, close to useless, even misleading.
The budget deficit has been widening, which is to be expected, but improvements are unlikely, given our assumption of the economy weakening again beyond the summer months.
Needless to say, perhaps, but balance of payments flows and external reserves are by far the most vulnerable aspect of the story. In a nutshell, excessive monetary-cum-credit expansion has been leaking out through the balance of payments lowering international reserves in an environment of very low interest rates. It looks like Ankara has yet to come to full grips with this reality, whose “endgame” – other than a miraculous turnaround in sentiment and in the economy -- we still can’t grasp.
Now read on...
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