Political and Economic Update
After the New Year’s Eve massacre at the posh Istanbul nightclub Reina, terror struck a courthouse in Izmir killing four and injuring eight. More atrocious incidents are highly likely. Meanwhile, AKP extended the State of Emergency for another three months, but we bet that it won’t be the last time. On Friday, 7K more civil servants were sacked, signaling that the purges are not even slowing down. Dogan Group might be on the bull’s eye.
As the floor debate on the Executive Presidency bill takes start, there is palpable unease among AKP and MHP ranks. We still bet the bill will pass. The referendum will be a horserace. Recent polls show declining support for the executive presidency, but is fairer to say that most voters have little idea what the new regime would entail.
Turkey’s peace-making efforts with Russia in Syria are failing. The war might come to Turkey’s borders. Ankara appears ready to commit more ground troops to al Bab operation, after the conquest of which the Army will presumably move deeper into Syria. Turkey’s enemies will retaliate by more terror.
TURKSTAT released the seasonally- and calendar-adjusted GDP series, according to which Turkish economy shrank by a rather steep 2.7% in Q3, q/q, with all demand components, other than government consumption, contracting. Looking ahead, inflation is likely to stay elevated along with weak growth, which leaves the CBRT in a terrible bind.
The key releases of the upcoming week are November IP and BOP data. We forecast the November CAD at $2.6 billion, broadly in line with the consensus, and the annual CAD at around $34 billion, or 4% of GDP.
Cosmo thinks the fate of the lira is sealed. It is heading for a crisis of confidence. Will AKP allow CBRT to hike rates or is Turkey heading the way of China?
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