Political and economic update
We rate political risk in Turkey as high, but can’t generate a prediction regarding its direction. Much will depend on the outcome of the Hakan Atilla Iran sanctions trial. In case of a guilty verdict (our likely scenario), Ankara will have to choose between a political settlement and defiance. AKP does not seem to have formulated a game plan yet.
Turkey’s diplomatic problems with the U.S., which deepened after Trump’s decision to move the embassy to Jerusalem and confessions of an YPG defector, renders a political settlement onerous. Increasing frequency of high level contact with EU is a good omen, but Brussels, too, will make demands on Ankara’s conduct at home.
On the domestic front, even a pro-AKP polling agency determined dropping support for the party. We can find no evidence that the rising nationalist rhetoric is enticing public imagination. A new crackdown against the main opposition party might escalate political tensions.
Industrial production and trade data point to a continuation of strong economic activity in Q4, which we think may be partly attributable to inventory behavior, while the cash budget signaled a relatively benign fiscal outcome for November, which we think will reverse sharply in December.
The upcoming week will bring several important data releases, like the Q3 GDP and October BOP data on Monday, and an MPC meeting on Thursday. The consensus forecast for Q3 growth is 10%, y/y, though estimates vary widely between the lows of just over 7% and the highs of 11.5%.We stick to our high single-digit forecast of some 9%, driven by strong growth in consumption, investment as well as stocks.
As for the current account deficit (CAD), we did not have access to a consensus forecast at this writing, but we estimate the deficit at around $4.3 billion, which, if true, should take the 12-month rolling CAD markedly higher -- to almost $42 billion, from $39.3 billion in September.
Finally, in line with the consensus, we expect the CBRT to move the Late Liquidity Window Rate some 100 bps higher to 13.25%, without ruling out something bolder, as we briefly discuss inside.
Cosmo agrees with the view that the CBRT will raise some rates by some amount this week, but style matters. The question is whether it is the best or the worst that is behind.
Now read on...
Register to sample a report