Weekly Tracker: September 13-19
After devastating PKK attacks on Turkish security forces, Turkey experienced near-riots in the West, which may get worse if a cease-fire is not declared. This is not a likely scenario, but Ankara doesn’t have a viable strategy to combat terror, either. But we remain optimistic for a lasting solution after the elections. In the interim, get ready for a very rocky ride.
Mr. Davutoglu was unanimously reelected AKP Chairman, but after much Byzantine plotting, presumably by Erdogan. He shall serve surrounded by the president’s men—and women. The only new poll made public last week still points to a hung-parliament, with us predicting that AKP will lose support in the coming days.
Growth in the second quarter surprised on the upside. But a good degree of resilience notwithstanding, we think this strength is largely temporary, and expect significant weakness in the final months of the year. The latest industrial production data confirms this in a sense, showing a relatively weak start into the third quarter.
The July balance of payments data indicated a widening in the 12-month rolling current account deficit, but this will reverse sharply in August (as already suggested by the preliminary August trade data), while July was a good month in terms of the financing flows, driven by FDI and long-term bank borrowing.
Fitch will review Turkey’s rating this Friday. We do not expect a rating downgrade, but a change in the outlook from stable to negative is quite likely.
Cosmo says the bottom in Turkish financial markets may be reached within September. Get your ammunition and ulcer pills ready.
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