Week of November 13
New political risks are cropping up each day. Thanks to an emerging deal between AKP and MHP, a presidential referendum is now very likely to take place in the spring. It is not clear whether an Erdogan victory or defeat is the “good case” scenario for Turkey.
It is not yet possible to draw firm conclusions about Trump’s policies vis-à-vis Turkey, except that his administration would be more sympathetic to isolating Pastor Gulen. Relations with the EU are deteriorating visibly, which may culminate in an accession freeze, if AKP-MHP co-sponsor a capital punishment bill.
Industrial production collapsed in September, which -- extreme volatility in the data notwithstanding -- suggests that risks to our 2.8% growth forecast for this year are already firmly on the downside. This also means that pressures for easier policies, particularly fiscal policy, are likely to intensify further in the period ahead. Incidentally, cash budget once again showed a significant pick-up in primary expenditures in October, but that was not much of a surprise.
Twelve-month rolling current account deficit widened visibly in September, broadly as expected, which, together with the sizeable capital outflows, was financed from CBRT reserves. The IMF concluded its regular Article IV visit to Turkey, leaving a bit of a complacent statement behind.
The EM story is being rewritten by Trump, at a time when Turkey’s already weak appeal is being undermined by poor balance of payments data and adverse political developments. Cosmic thinks that there is no investment case for the country at the time.
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