Political and Economic Update
The politics section is dedicated to a long-term assessment of Turkey’s policy path on the political front, which is necessitated by the switch to the Executive Presidency. While President Erdogan will finalize his policy mix in June, initial omens are inauspicious. There is no signal of moderation in domestic policy.
On foreign front, relations with the EU are frozen, with no improvement expected in the foreseeable future. The upcoming summit with Trump on May 16th is unlikely to result in a compromise on Syrian policy. Disagreement could lead to further deterioration in the relations. The relation with Russia is more promising, but the price tag will be very hefty. Iranian encroachment and PKK’s expansion in Iraq and Syria pose existential threats to Turkey, against which options are limited.
We surmise that support for AKP may have entered a secular decline, which may be exacerbated by policy mistakes and failures as well as the secular stagnation in the Turkish economy.
The Bank’s second Inflation Report of the year revised inflation estimates up, as expected, though somewhat less so than envisaged, especially for end-2017. Commendably, Governor Cetinkaya reiterated the Bank’s resolve to stick to a tight monetary policy stance, but we share a few skeptical remarks inside.
The core trade deficit continues to narrow on the back of solid export performance and import compression, while recent growth indicators suggest that the economy is growing at a steady pace, largely owing to government stimulus, but also to exports.
The key data release of the week is April inflation. Market consensus is 1.3%, ours is slightly higher (1.4%), as we assume that food prices have continued to climb sharply higher in the month.
Please note that our Cosmic Strategist is taking a short break this week to reflect on the implications of recent developments on Turkish assets, while we plan to publish our Quarterly Report, The Road To November 2019, during the week of May 8th.
Now read on...
Register to sample a report