Western tensions, fiscal excesses
Both the US and EU served notice that Turkey must change its ways to continue its membership in the Western alliance. The US threatens new sanctions if S-400s are purchased and aid to Maduro endures. The EU made it clear that Turkey should expect neither visa waivers nor negotiations on a new Customs Union, if compliance with the Copenhagen Criteria is not achieved. Based on evidence that the alternative of closer ties with Russia-Iran or China are either infeasible, or doesn’t deliver visible economic benefits, we conclude President Erdogan will heed the Western advice after the elections.
We suspect poll results are not to AKP’s liking, because the marquee names of the industry, namely KONDA, SONAR, Metropoll, etc., are refraining from polling or not announcing their results. The evidence we have suggests that CHP-IYIP will conquer Ankara, Bursa and possibly Antalya, but Istanbul will stay pro-AKP, while a CHP bastion, Eskisehir, is too close to call. We also provide a host of anecdotal evidence explaining why AKP-MHP is running scared, concluding that the economic distress will at the end decide close contests in favor of the opposition. If our forecasts come true, new conservative parties may emerge from the bosom of AKP.
As we’ve reported during the week (In Recession, of a Balance Sheet Kind, March 11, 2019), Turkish economy entered a recession in Q3, but January industrial production data, which showed output expanding by some 1% after 5 consecutive months of decline, created hopes that the economy might have bottomed out, or that the worst may be left behind us. We find these conclusions premature for the moment, and think instead, that a bumpy trajectory is awaiting us.
The budget deteriorated further in February, and the unemployment rate rose sharply further in January.
Cosmo explains how Mr. Berat Albayrak continues the legacy of suppressing interest rates inherited from President Erdogan, but does it in new ways. Yet, the results will be the same: tinkering with interest rates have always triggered currency shocks.
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