Think global, act local
After pondering at length developments in the Middle East, Ukraine war and the US presidential elections, the political analyst has decided to dedicate a major portion of his contribution to this monthly report to potential exogenous shocks, which would completely wreck Mehmet Simsek’s Economic Stabilization Program, and to a lesser extent change the shape of Turkish foreign policy -- and not in a negative way.
Nevertheless, the essays start with domestic developments, where he resolutely sticks to his base case scenario of CHP Istanbul mayor Mr Ekrem Imamoglu being banned from politics and early elections taking place around the end of 2025.
There are some developments, which support his call, such as AKP-MHP’s renewed push for a new constitution, and others which don’t (such as higher-than-expected wage-pension hikes for 2025).
The econ author briefly goes through the latest macroeconomic developments in his favorite Q&A format.
Growth has very likely turned negative in Q3, but we are still working with the premise that a deep and protracted contraction in economic activity is not the most likely scenario.
The monthly pace of inflation is yet to decelerate, while inflation expectations are yet to improve visibly, which suggest that the CBRT/MPC should delay rate cuts to at least until early next year. Will they? Could they? We shall watch market expectations and the signals from the Palace.
In any event, we maintain our broader view that in the absence of a comprehensive program, inflation will prove sticky.
The cash deficit has reached a 12-month rolling TL1.7 trillion in September, or 4.4% of GDP, up from 2.4% at end-2023, pointing to a sizeable fiscal impulse. This year’s 4.9% of GDP estimate should be broadly achievable, but we remain skeptical on next year’s 3.1% target.
The current account deficit continued to narrow sharply through August, though the shrinkage appears to have taken a pause of sorts in September, based on preliminary trade data.
As for our macro watch list, we continue to focus most notably on reserves, the monthly pace of inflation and inflation expectations, as well as the end of the year minimum wage hike.
Please note that there will be no Weekly Tracker this Sunday.
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