Weekly Tracker: December 13-19
The government’s 2016 Action Plan promises a lot of pleasant improvements for socio-political arena, but very little concrete steps for structural reforms. Additionally, it is incredibly populist in terms of the envisaged spending measures.
Turkey’s troubles with Russia continue and spread to Iraq last week. Iran has also joined the fray.Besieged by a four-partite alliance wanting Turkey to disassociate from Middle East affairs, the country is experiencing its biggest diplomatic crisis since 1974 Cyprus Affair. The solution starts at home by re-befriending the Kurds, but Davutoglu didn’t even mention the Peace Process in his 2016 action plan. Turkey’s enemies will use PKK and Syrian Kurds to destabilize the country. Turkey’s political risk premium is set to rise further.
There is not much to report on the econ side in addition to what we’ve already said during the week, so we share a few more highlights here in the Executive Summary. We’ve written our thoughts on last week’s GDP and BOP data, which may be summed up as, “don’t let solid headlines fool you”.More than half of the 4%, y/y, growth is from stock build-up and a surge in a specific consumption category (transport and communication), while the core balance is finally helping the CAD adjustment, but that is in good part because (non-energy) imports are declining sharply. Incidentally and somewhat disconcertingly, however, the latter was not mentioned by Governor Basci during his presentation last week -- of the CBRT’s Monetary and Exchange Rate Policy document -- when he gave his list of reasons as to why the CAD is narrowing.
The document and the press meeting as such, had nothing new, though we saw, yet again, that Governor Basci is a very hopeful and complacent gentleman, who continues to think that peripheral measures like Food Monitoring Committee will solve the inflation problem, the envisaged minimum wage increase won’t make it worse, and that the Bank will be able to afford – despite an increasingly edgy environment -- a very gradual “simplification” journey “from below” (as we called it in our Quarterly released last week). The latter means that the Bank is planning a very slow process of lifting of the O/N borrowing and the weekly repo rates (and perhaps lowering of the lending rate at some point), whereas we think that this trajectory is fairly optimistic -- a hike of the O/N lending rate may be inevitable instead, at some point down the road.
Cosmo thinks emerging markets have no story for 2016 and a market recovery remains elusive. He adds that Davutoglu missed a big chance to set Turkey apart by under-emphasizing structural reforms.So Cosmo believes that the Turkish sell-off is set to continue.
Please note that we are putting our Weekly Tracker on its traditional X-mas holiday until January 3rd.In the meantime, our reporting will continue, of course, through briefs and GSP posts. We are also planning to issue a short piece on Turkey’s structural reform agenda, which should reach your inboxes within the next two weeks.
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