Waiting for Biden, vaccine and reform
The countries in Turkey’s region are apprehensively waiting for the arrival of the Biden Era, predicted to have a renewed focus on Middle East, Russia and Iran. The first section in politics covers how prepared Turkey is and what can be expected in the upcoming Erdogan-Biden talks. A small disaster is probably the more likely scenario.
At home, AKP-MHP are engaged in medieval machinations to close down pro-Kurdish HDP, to remake the Electoral System, split the opposition and suchlike, none of which is on people’s agenda. Poverty and infection are the only issues that matter to Turkey, on which Messrs. Erdogan and Bahceli are doing little, as well as entertaining false hopes. The potential for social unrest and shifts among political parties are non-negligible possibilities.
The final section focuses on rising poverty bordering on malnutrition and Turkey’s inadequate vaccine supplies/orders. It is quite possible that curfews and lockdowns will last into mid-spring, frustrating voters and raising the potential for unrest.
Turning to the economy, the pressure to lower rates has already started, led by President Erdogan and Mr. Hisarciklioglu, the President of Turley’s influential Union of Chambers and Commodity Exchanges. These may not have “imminent” implications on the MPC actions, but it shows that nothing has changed in the way the political establishment and the business community look at things.
The budget ended the year markedly better than expected, compared to estimates provided in the September NEP, which provides some fiscal space to cope with the ongoing COVID wave and a slowing economy. But there is no room for complacency, given that this year will play out very differently.
Industrial production rose sharply again in November, y/y, which suggests that the economy might have grown by about 1.5% last year, even after taking into account a relatively visible slowdown in December.
November balance of payments data showed a larger than expected current account deficit was financed chiefly by unidentified inflows, also confirming that the year was by far one of the worst on record, defined by a large deficit financed entirely from reserves.
Looking ahead, the first MPC meeting of the year will be held on Thursday. A local poll we saw shows no hike as the median expectation, though there are quite a few institutions/economists that are expecting a 100 bps hike. We give 50% odds to each one of these scenarios.
The S&P will conduct its regular review on Turkey on Friday, which rates the sovereign 4 notches below IG, with a stable outlook. It would not be a surprise to see the latter lifted to positive territory, but we do not expect an increase in the actual rating, given the myriad risks standing in the way.
Cosmo claims risk appetite will come back soon, while Erdogan is not-yet-serious about lowering interest rates. Even then, the upside for the TL may be limited.
Now read on...
Register to sample a report