Week of June 26
On the eve of the 9-day Id of Ramadan, Turkish politics has become rather boring, hence the politics section of the Weekly Tracker uses this opportunity to assess the potential impact of Brexit on the Turkish economy, markets and politics. While there are some good case scenarios, we don’t find them plausible. It is most likely that Brexit and the ensuing UK divorce would cause some damage to EM and Turkey. We first evaluate the harm through trade, tourism and investment channels, considering them all reasonably mild. With regards to financial flows and bank credit, however, we exercise much greater caution, preparing ourselves for a brief risk reversal episode or a credit crunch. Politics is the thorniest issue. The Brexit shock could make investors more cognizant of country-specific political risk, in which case the risk premium on Turkish assets would rise. Rising Islamophobia in EU could compel the leaders to treat Turkey with less tolerance, in return for which Turkey could turn away from the West. A number of growth indicators for June pointed to a somewhat mixed picture, which we briefly review inside, along with the May trade data, which should show another significant shrinkage of the headline deficit, but not the core.
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