Running scared, recession underway

TURKEY - Report 10 Jun 2018 by Murat Ucer and Atilla Yesilada

A number of recent polls add weight to our call of President Erdogan winning the race in the second round, as we declare CHP candidate Mr. Ince his potential rival. Assuming pro-Kurdish HDP passes the qualifying hurdle, opposition parties should gain control of the Grand Assembly. A spate of rash acts by the government suggests AKP is running scared and for the right reasons. We warn our readers that with a very large number of undecided voters, surprises – not favorable to AKP -- are probable.

We address most Frequently Asked Questions, such as whether the CBRT rate hike could rescue AKP, and Erdogan could lose.

In diplomacy, a supposed deal with the US on the contested Syrian town of Manbij delays the inevitable clash between erstwhile allies, but the threat of multiple sanctions is real and imminent. After Afrin, Turkish forces are now approaching Qandil Mountains, where PKK leadership is holed up. Turkey’s “Southern blues” will not go away.

Monday’s Q1 GDP release should show another stellar growth rate, but that’s history. Recent data confirms a sharp slowdown is in the making, which has likely gotten worse on the back of recent market volatility and markedly higher interest rates. Negative growth, q/q, is now very likely in Q3.

Another important release of the week, also set for this Monday, is April balance of payments. Consensus has the current account deficit coming in at some $5.3 billion, which is exactly in line with ours. If true, the 12-month rolling deficit should rise to just under $57 billion, from $55.4 billion a month earlier. Preliminary May trade data, which showed 12-month rolling trade deficit barely widening, suggests that the worst may be behind us in terms of the trade/current account deficit cycle, though this may not provide much comfort in the current environment.

Cosmic Ubermind is not satisfied with the bold CBRT rate hike, calling for more weakness in TL assets, blaming deteriorating EM environment, rating agencies and the approaching recession.

Now read on...

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