Week of October 23
Turkey’s political uncertainties proliferated with daunting speed since the beginning of October, some of which are not yet fully grasped by the international investment community. We now believe a presidential referendum commands 75% odds, though timing is uncertain. Polls show Erdogan’s support is rising, yet Turkish voters are fickle and it is too early to grant him the victory.
Abroad, Ankara might be articulating a new foreign diplomacy doctrine that entails aggressively defending its interests in Syria and Iraq through military power. Given our base-case scenario of post-ISIS sectarian conflicts in the region lasting for at least a decade, such an engagement is going to be very costly and potentially destabilizing.
At home, the Gulenist purge is in full swing, with new legal complications propping up each day.
Primary deficit worsened visibly in September, on the back of revenue weakness, while the relative slowdown in primary expenditure growth should prove temporary. The unemployment rate continued to edge up in July, though at a slower pace.
According to the CBRT’s latest expectations survey, analysts see a macro picture that consists of weaker growth, a larger current account deficit and sticky inflation, which points to a divergence of sorts with the official – somewhat more complacent -- view, particularly that of the CBRT. This week’s Inflation Report presentation should give us a clearer idea as to how the latter sees the macro outlook. Parenthetically, we expect no change in the inflation forecasts for this and next year, of 7.5% and 6.5%, respectively, which have already been provided in the MTP.
Cosmo doesn’t believe the halt in the CBRT rate cuts would rescue the lira.
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