Political and Economic Update
With only seven days left to the polls, “the expert opinion” heralds YES camp gaining momentum. Our updated poll-of-polls still reveal a very tight race. AKP will probably win because it dominates the electoral system, but readers ought to be ready for Sunday night surprises.
We look for clues about AKP’s post-referendum policy path. A letdown in Gulenist hunt is unlikely. There is some possibly of a “Peace Process”, but the specter of a break-up with the EU looms large. President Erdogan still contemplates cross-border military action in Syria and Iraq.Early elections in the YES and more prominently in the NO scenarios are being seriously discussed in the media.No matter how we cut the deck, post-referendum political risk is likely to prevail, unless Erdogan has an epiphany.
Trump’s new attitude towards Assad might improve Turkey’s fortunes in Syria, but even in the best case scenario of a new Turko-American alliance based on fighting Assad, Turkey will have to pay a price.
Manufacturing PMI rebounded sharply in March, more so than we would have expected, but a cyclical pick-up in economic activity on the back of exports and government stimulus should not be all that surprising.
An MPC member resigned this week, which is an atypical way of ending a term by CBRT traditions, but the decision is probably partly personal, and partly relates to the fact that Governor Cetinkaya is keen on filling the post with people from his inner circle. Prof. Ertem, a key presidential advisor said that the Bank’s tightening is “temporary”, but that is exactly the kind of thing that should not be said, given that the Bank’s main challenge now is to stop inflation expectations fro deteriorating even further.
The key releases of the week are February IP and BOP data. We expect a current account deficit of around $2.4 billion, slightly below consensus, which, if correct, would widen the CAD to around $33.6 billion, from $33.2 billion in January. Preliminary trade data for March hinted however that this could reverse in March.
Cosmo sees a relief rally in case of a YES, and a long sell-off in case of a NO vote. These are clichés. Latest inflation figures shut the door to easier monetary policy in case of YES, but AKP insists on fast growth. What will happen?
Note that because of the upcoming referendum next Sunday, April 16th, there will be no Weekly Update.
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