Weekly Tracker: January 3-9
Welcome back to the turbulent and irrational world of Turkish politics. Since our last writing, much that is of import has transpired, which requires detailed analysis. On the other hand, we are aware that you must have at least 19 other markets to catch up on, thus want to prevent information overload. In the first 2016 issue of the Weekly Tracker, we hence focus on the Big Picture, and give you a synopsis of what you need to know most urgently on the most critical regional, domestic and foreign policy challenges on Turkey’s agenda, including a quick rundown of upsides and downsides for each.
On the last day of the year, the government agreed to take up 40% of the “additional” cost of the minimum wage increase, which is estimated to create a TL10 billion or some 0.5% of GDP burden on the budget, atop the estimated 1% of GDP from pre-election promises. These fiscal excesses, combined with a few recent remarks from Deputy Prime Ministers Numan Kurtulmus and Lutfi Elvan (which we briefly cover inside) suggest that the government’s key economic challenge in 2016 will surely be sticking to budget discipline, returning to orthodoxy and speeding up reforms – something we cannot be too hopeful about, for now.
Partly as a result of the rapidly growing spending pressures, the year began with a host of tax/price hikes on electricity, as well as on alcohol and tobacco products and mobile phones, which, we estimate, may add some 0.5 pp to January inflation -- at least.
Trade deficit was $4.2 billion in November, which drove the 12-month rolling deficit sharply lower-- by over $4 billion -- to $65.5 billion. The shrinkage in imports, both energy and non-energy, was the key driver. As for the upcoming data, the key release of the week is December inflation. If we go with Istanbul’s Chamber of Commerce Index released over the weekend, Putin might have helped Basci big time. That is, thanks to collapsing food inflation, we may get a positive surprise, with CPI-inflation ending the year at 8% or lower, as opposed to the 8.5%-ish consensus.Of course, even if this turned out to be the case, concerns related to the underlying inflation dynamics or this year’s difficult inflation outlook would hardly be resolved.
Now read on...
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