Political and Economic Update
As the Free Syrian Army units sponsored by Turkey enter rebel-controlled Syrian province of Idlip, Turkey is on the verge of a second military adventure in the neighbor. This one promises to be bloodier than the Euphrates Shield, but it is a necessity to retain a say in the future of the war-torn country.We fear the operation may spread to Kurdish controlled Afrin next door.
Erdogan raised the threat level on Iraqi Kurds, outlining specific sanctions, but we doubt he will follow through. Sanctions are as harmful to Turkey as to Iraqi Kurds. Turkey’s relentless pursuit of Kurdish submission to Baghdad is counter-productive and is likely to destabilize Iraq further, while aiding PKK.
On the domestic front, President’s goal of replacing exhausted mayors and other party officials is running into difficulties, which is bordering on open rebellion. The so-called reform is unlikely to achieve its objective of re-energizing the party and bring back the disappointed voter, because Erdogan refuses self-criticism. Four branded polls conducted during August-October bear hints of AKP losing altitude, but no clear alternative is emerging.
A number of production indicators for September suggest that growth momentum continued through the third quarter, though with some, albeit tentative, signs of moderation.
The cash budget improved in September, which is encouraging, but this is unlikely to last, given that spending pressures remain elevated, and should accelerate toward the end of the year.Meanwhile, the large build-up of Treasury’s cash account at the CBRT attracted a good deal of attention lately, begging the question of whether this could mean preparation for early elections. It’s hard to be certain, but we certainly think it is a distinct possibility.
Imports surged in September according to the preliminary customs data, outpacing exports by more than three-fold. This is not all that surprising, given that rapid growth thanks to stimulus measures should, sooner or later, be expected to boost import demand.
The key data releases of the week are August industrial production and BOP data.We forecast the current account deficit at $1.6 billion, slightly higher than the consensus ($1.4 billion), which, if correct, should drive the 12-month rolling deficit slightly higher to $37.3 billion, up from
$37.1 billion in July.
Cosmo is extremely concerned that rising political risk perception--if coupled with further advances in the Dollar Index and U.S. long yields-- might undermine demand for the TL, triggering yet another vicious cycle ofF/X depreciation and higher inflation.
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