Weekly Tracker: Nov 29 - Dec 5
The downed jet fighter crisis between Turkey and Russia will not fade away soon. Russia’s real motive is to disengage Turkey from all Syrian affairs, for which it found the perfect excuse. The crisis is likely to escalate in the military and economic dimensions, raising Turkey’s risk premium permanently.
Turkey’s new Cabinet lacks Ali Babacan and is otherwise heavy on lightweights and old faces.While the primary objective of Davutoglu is reform, we fear this Cabinet lacks the skills to carry out the mission. Moreover, Erdogan’s priority remains a new Constitution that will grant him executive powers. The arrest of two prominent journalists displays the dark side of the AKP administration. Meanwhile, the promised opening of new chapters with EU may moderate Erdogan’s lust for vengeance, but otherwise democratic standards will continue to slip, along with economic sentiment.
Potential economic effects of the Russia-Turkey conflict are significant, but should be relatively manageable, assuming that the biggest threat from Turkey’s perspective, a cut-off in natural gas supply, is avoided. Moreover, given the scale of interdependence between the two nations -- and the mutual potential losses involved -- should eventually bring the two back to their senses, a point with which our political analyst clearly disagrees -- for the moment.
The key data releases of the upcoming week are October trade and November inflation data. The twelve-month rolling trade deficit should narrow markedly, by about $2.5 billion, in October to under $70 billion, thanks to import compression – something we already know from the preliminary Ministry of Customs and Trade data.As for inflation, we estimate a relatively modest increase in the 12-month CPI inflation rate, to 7.8% from 7.6% in October.
Waking up from a month-long stupor, Cosmo realized that He no longer fancies Turkish assets.He now rates them “underperform”.
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