Political and Economic Update
We are very worried about the state of politics in Turkey at a very fundamental level because the country is becoming more detached from the reality as we speak. We identify this malaise as “self-hypnosis”, which has a very ugly anti-Westernism at its core. The new paradigm is in contradiction with the economy’s Western orientation and could accelerate its demise.
Trump Presidency begins under a great deal of controversy and uncertainty, but it is fair to say that more likely than not, Ankara’s expectations from the new “leader of the free world” will be frustrated.
The joint AKP-MHP constitutional reform proposal is advancing swiftly in the Grand Assembly, but the leaders of the sponsors are worried about the second round of balloting. Early election talk is once again in the air, threatening to prolong political uncertainty.
There will be no peace in Cyprus, don’t waste your time reading up.
Industrial production continued to recover in November, but the pace of recovery is not particularly strong.
November BOP data showed that the 12-month rolling current account deficit has stabilized at less than $34 billion, about where it should end the year but financing did not look good: there were sizeable outflows through the financial account. The latter is running at a 12-month rolling rate of some $27-28 billion, i.e. less than what’s required to finance the CAD. Unidentified inflows – and to a lesser extent CBRT reserves -- keep saving the day, but experience suggests that this dynamic is never lira-friendly.
Meanwhile, the Economist’s Big Mac index showed that the lira, as of January 2017, is now quite a bit undervalued in “adjusted” (for per capita income) terms as well, though the poisonous combination of a tougher global environment, a high external financing requirement and a politicized monetary policy does not bode well for lira’s prospects, recent respite notwithstanding.
Cosmo sighs a breath of relief at the stabilization of the lira, but sees several storm clouds gathering on the horizon.
Now read on...
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