Week of May 15
Starting with this week, we begin to fit together the pieces of Turkey’s multi-dimensional political puzzle. Our top candidate for premiership remains Mr. Binali Yildirim, though Messrs. Bekir Bozdag or Ismet Yilmaz can’t be ruled out. We can’t guarantee that economy czar Mehmet Simsek will retain his post in the new administration. The new government will immediately introduce a mini-package of constitutional amendments to the parliament to allow the President to keep his party affiliation, but 330 votes to send this legislation to referendum will be difficult to find. Another amendment to lift the immunities of parliamentarians under indictment or convicted of crimes has at best 50% chance of being ratified, meaning arresting HDP deputies to fill their seats with AKP members is a risky proposal.
With its extraordinary convention hostage to the caprices of courts, MHP is rapidly heading to a split but neither faction is likely to support a semi-presidential system. In our base-case scenario, there is either a referendum or early elections within the next 3-to-9 months.
President Erdogan might consider sending Special Forces into Syria to remove ISIS from the border, while the refugees for visa waiver deal with EU is dead.
The current account deficit has continued to narrow in March, albeit at a slower pace, while capital inflows improved, mainly thanks to the turnaround in global sentiment. Industrial production growth slowed in March, but remained resilient in Q1 as a whole. We maintain that further slowdown must be in store, however.
Last Friday, one of the Deputy Governor and hence, MPC posts has been filled with Mr. Erkan Kilimci, the Head of the Bank’s Money Markets Department, with three more such posts left to fill by early June. With the markets getting a little uneasy lately and the lira having weakened quite visibly the past week, another cut (of the O/N lending rate) at the upcoming MPC meeting is not a foregone conclusion, but we think a 50 bps cut is nevertheless the most likely scenario – for now.
Cosmo celebrates the beginning of the bear season in Turkish markets. The holiday-shortened week will be the calm before storm, after which it will all be downhill.
Please note that there will be no Weekly Tracker next Sunday (May 22nd), as the Global Source team takes a short break during the long weekend -- May 19th is an official holiday in Turkey -- but we shall be back from May 23rd onward with various updates.
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