Start spreading the news, off to NYC
The next milestone in Turkey’s journey between salvation and damnation arrives this week, as President Erdogan travels to NYC to meet with investors and most likely to hear from the American administration about the cost of not complying with its requests. Emboldened with a diplomatic victory in Idlib, Erdogan may be hard to persuade that making peace with the US is a necessary condition for economic salvation.
Next, he will visit Merkel, who shall probably tell him not to expect any financial or other favors before substantial reforms at home. Our politics author remains reasonably optimistic that Erdogan will grasp the need for better behavior at the end of these two crucial visits.
The re-education process continues at home as well. While polls are scarce and inconclusive, the alliance with MHP has teething pains and the severe drop in September consumer confidence suggests voters are getting frustrated. Unable to pork-barrel his way through the local election campaign as targets of the NEP constrain him, Erdogan may choose to rely on better relations with the US and EU to improve confidence at home.
The central government budget was weak in August mainly because of pension payments and tax (SCT) expenditures. As things stand, meeting this year’s deficit target (which was moderately revised up from the original target), relies heavily -- and in our view unrealistically-- on increasing non-tax revenues and restraining primary expenditures sharply in the final 4 months of the year.
Industrial production surprised on the upside in July, but that’s very probably a temporary blip, as most other indicators suggest that the economy is either continuing to lose momentum (e.g. retail sales), or have already entered contractionary territory (e.g., consumer confidence, credit data).
With another 0.3 percentage point increase in June, the unemployment rate rose by a cumulative full percentage point since February, but the lagged nature of the data suggests that things, unfortunately, are likely to get markedly worse in the coming months.
A key release of this week is August trade data, which, based on the Ministry of Trade data released earlier, should come in around $2.5 billion taking the 12-month rolling deficit sharply lower --by about $3.5 billion-- to around $80.3 billion, down from $83.7 billion in July. Exports and imports have both declined in August, y/y, but imports markedly more so than exports – at around 22% and 6%, respectively.
Cosmo says the TL has entered the Devil’s Triangle, with Turkey needing help from the Fed and US to steer clear.
Now read on...
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