Political and Economic Update

TURKEY - Report 11 Jun 2017 by Murat Ucer and Atilla Yesilada

We find political risks acceptable in the short-run, though political stability is only skin-deep beyond the autumn/winter of 2017. At home, Cabinet reassignments and the new road map are delayed either because of the Qatari Crisis or by the counsel of PM Yildirim, who wishes to work with his current staff.

Meanwhile, Turkey’s relentless purge shows no sign of abating, renting asunder the conservative soul, adding to the stamina of the opposition and destroying Turkey’s reputation abroad. Germany has resolved to pull its troops out of the Incirlik Airbase, making a speedy improvement in EU relations no longer possible. Ankara jumped head first into the Qatari Crisis, not necessarily for economic reasons, but because AKP is afraid that if Qatar caves in, it will be its turn next.

We have several important data releases this week, in addition to a Monetary Policy Committee meeting that will be held on Thursday. Our forecast for Q1 GDP growth is slightly below consensus, at around 3.5%, y/y, but we remain entirely open to surprises because of the nature of the new GDP series. On the April current account data, we concur with the consensus forecast that the deficit should come in at around $3.5 billion, which, if true, should slightly widen the 12-month rolling deficit to $33.4 billion from $33 billion in March. Finally, we expect the MPC to stay put, holding all rates steady.

Meanwhile, April industrial production data showed a relatively solid start into the second quarter, a few caveats notwithstanding, while the May cash budget data signaled that fiscal headlines should turn relatively positive this week when the MoF data is released.

Cosmo regretfully informs its vast global audience that after a week of nitpicking, He can’t find any immediate reasons for the TL asset rally to end. Sorry, I let you down, guys.

An important note to our readers: We are putting our Weekly Report on hold for three weeks until July 9th, because of our heavy traveling schedule and upcoming holidays, but our usual updates in the event of important data releases and developments, will continue.

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