Political and Economic Update

TURKEY - Report 12 Nov 2017 by Murat Ucer and Atilla Yesilada

We continue to rate political risk perception for Turkey as high, with the possibility of a further downside. PM Yildirim’s Summit with VP Pence in the U.S. failed to deliver any momentum to the troubled relationship. The upcoming trial of Turkish citizens accused of circumventing sanctions on Iran and a potential indictment of former National Security Advisor ret. Gen Flynn could undermine the relationship, as well as harming the reputation of the banking system.

At home, a summary of three recent polls reveal AKP’s backing dropping to 44% from last general election’s performance of 50%. The newcomer Good Party is seen to make it to parliament. On the foreign front, there is not sufficient evidence that the turmoil in Saudi Arabia is more than a succession battle, but if it is, a transition to a more moderate form of Islam and a more robust posture towards Iran, reverberate in Turkey.

Industrial production rose sharply in September, signaling a very high GDP growth rate for Q3, a few caveats notwithstanding. Cash budget deteriorated a bit in September, over the same period of last year. Revenue was buoyant, but so was growth in primary expenditures.

There are a number of key data releases this week, one of which is September BOP. We forecast the current account deficit at around $4.3 billion, which is slightly above consensus ($4.1 billion, median, Thomson Reuters). If we are right, and without significant revisions to back data, the 12-month rolling deficit should come close to $40 billion, up from $37 billion in August.

Cosmic Strategist sees broad declines in TL-denominated assets as a sign of political malaise, predicting a CBRT rate hike relatively “soon”.

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