Political and economic update
Turkey’s relations with the U.S. took another turn for the worse, as Washington hinted at its intention to help PYD-YPG build a “state” in North-East Syria. President Erdogan threatened military retaliation in “one week”. Syria is also poisoning Turkey’s budding romance with Russia and Iran, as Assad’s Army is moving North in the de-confliction zone Idlib Province, which supposedly was left to Turkey’s control. The current constellation of rivalries and alliances in the context of Syrian policy are no longer tenable, requiring immediate re-orientation. However, we can’t quite gauge which way Ankara will move, given the high costs of change.
Parenthetically, to compound Turkey’s diplomatic difficulties, both EU President Juncker and a leaked German coalition protocol stated that no progress with Turkey is possible as long as basic human liberties are violated.
At home, an AKP-MHP (nationalist party) alliance is becoming permanent and official, but it is difficult to calculate the net gain for AKP or Erdogan. MHP’s odds of making it to the next parliament increased as a result. A recent poll indicates an AKP-MHP coalition will govern Turkey, while Erdogan’s chances for re-election are solid, but we express some doubts inside. Meanwhile, we still don’t know whether former President Gul will contest the presidential race, but AKP is running scared.
Industrial production rose at a strong year-on-year pace in November as well, but we continue to think there is a momentum loss of sorts through the final quarter of the year.
Although this is partly specific to the month concerned, the balance of payments figures for November were simply awful, with a current account deficit of over $4 billion almost fully financed from CBRT reserves. The 12-month rolling current account deficit hence rose further to $43.7 billion from $41.8 billion a month earlier, which, as we’ve noted last week, should widen further to around $47 billion in December, ending the year at around 5.5% of GDP.
Looking ahead, the MPC meeting on Thursday is the main event ahead of us. We see the Committee staying put as being by far the most likely scenario.
Cosmic Strategist raised Turkey’s political risk premium on account of troublesome developments in Syria, and He, too, expects no rate hikes of any kind at this week’s MPC meeting.
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