Political and Economic Update
Turkey was shaken by another terrorist attack last night with two bombs exploding at a very central district of Istanbul, killing almost 40 (mostly police) and wounding another 160 people. No one had claimed responsibility at the time of this writing, but senior officials pointed to the PKK, the Kurdish terror organization. (Click here for a map of the recent terror incidences in Turkey.)
Over the weekend, the government, in agreement with the nationalist opposition party MHP, submitted a constitutional amendment package to parliament, which seeks to consolidate presidential powers and pave the way to Executive Presidency. Recall that the agreement with MHP was needed to secure the 330 votes required to move the amendment to a constitutional referendum, which now becomes highly likely. Among others, constitutional amendments reportedly eliminate the premiership; allow the President to directly appoint the cabinet, all top bureaucratic posts as well as the newly introduced presidential deputy posts, and give the President the power to rule by decree. Elections will take place in 2019, but some of the amendments could take effect soon after a yes vote at the referendum. As we understand it, parliament will vote on the amendments sometime early next year, with the referendum itself taking place some time in the spring. (Click here, here and here for further detail).
Our politics author will comment on the latest political developments once he recovers from his severe flu. As far as the economic impact of Executive Presidency is concerned though, this author fails to see what exactly it will solve: it may perhaps beget more “stability” of sorts, but whether it will bring peace and the stronger institutions that are required for sustainable growth, is highly debatable, to say the least.
The key attraction of the upcoming week is the Q3 NIA data, which will be accompanied, as reported by TURKSTAT over the weekend, a brand new and revised GDP series. So on Monday, we will learn that the average Turk was actually visibly richer than we thought (based on the old series that had been released in early 2008), but that at the same time the economy grew very little in Q3, if at all, like around 1%, y/y. (In fact, it has most likely shrunk in quarter-on-quarter terms, as we discussed in last Sunday’s report.) Another key release of the week is October BOP data, which should yield a current account deficit (CAD) of just under $2 billion. If true, this would widen the 12-month CAD to some $34 billion, from $32.4 billion in September.
Meanwhile, industrial production rebounded in October, growing by a workday-adjusted 2%, y/y, but in 3-month moving averages, IP is barely in positive territory (0.4%, y/y). This is in line with our broader view that some rebound notwithstanding, we doubt that the economy’s growth momentum will have markedly strengthened in Q4.
There is very little to add to our general remark – sent out during the week -- on the recent announcements of the Economic Coordination Board: that the announced measures are chiefly about supporting growth, especially by way of relaxing credit conditions, and as such, they fail to acknowledge the key trade-off that the economy is faced with, between promoting growth on the one hand, and stabilizing the currency, on the other. Then again, because the measures seem mostly about coping with distressed credit (through the establishment of a TL250 billion credit guarantee scheme, relaxing provisioning requirements for banks, postponing social security premium payments and so on), they may not contribute much to growth in the first place.
This will be it for the Weekly today. We shall continue with our regular reporting, including on the GDP data, as of Monday.
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