Weekly Tracker: February 14-20
Despite our passionate reasoning, rumors of a Turkish military intervention in Syria would not die, largely because Ankara keeps its options open. We argue once again that a military operation is not feasible. Meanwhile, Turkey-EU relations are improving, but at gunpoint.President Erdogan is openly blackmailing EU to extract more money and accession privileges in return for keeping refugees at home. Could any good come out of a relationship of such nature?
Turkish security forces are about to put down insurgencies in the last two remaining Kurdish townships, but PKK is getting ready to open new fronts. Without a clear strategy for reconciliation, get ready for more PKK action in the spring. AKP appears determined to take Turkey to a Presidential System, which means the ballot box might be set up once again in 2016, but will the entire party fall behind Erdogan?
The year ended with a current account deficit of $32.2 billion (some 4.5% of GDP), down from $43.6 billion (5.5% of GDP) a year earlier, but the decline was driven entirely by the shrinkage in energy deficit and to a much lesser extent gold trade, as the core balance worsened. Financing was fickle, with capital inflows, unidentified inflows, and the CBRT reserves each financing about a third of the deficit. There were some bright spots too, like relative resilience in FDI and relatively significant long-term corporate borrowing, but growth should be hard to sustain with this sort of a financing structure for yet another year, in our view.
Meanwhile, industrial production remained relatively -- and sort of puzzlingly -- resilient through Q4, chiefly owing, arguably, to lax monetary and fiscal policies as well as Turks’ thus far unflappable “immaterial devices of the mind” (aka animal spirits).
Cosmo has become more concerned about a vicious cycle between the risky asset sell-off and a global recession, but he still recommends Turkish assets.
Let us add that this Tracker includes developments on the Syrian front as of the early morning hours -- Istanbul time. Needless to say, we are monitoring the developments closely, and we shall update our readers, should there be a need for it.
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