2022: Something has to give

TURKEY - Report 09 Jan 2022 by Murat Ucer and Atilla Yesilada

The politics section of the first Weekly report of the year is dedicated to establishing a road map for 2022, as well as going over our main scenario and predictions. President Erdogan and his AKP-MHP alliance didn’t receive a windfall in polls despite massive fiscal largesse, as rampant poverty overwhelmed the relief. Their respective fortunes are almost impossible to improve in the coming months.

So, the politics author sticks to his scenario of early elections, and a fairly painless transition to a post-Erdogan Era. Halkbank and renewed clashes in Idlib, Syria are primary foreign policy risks.

Preliminary indicators suggest that growth has lost momentum, but likely remained in positive territory in the final quarter of the year. Trade data suggests Turkey ran relatively large current account deficits in November and December. The cash budget deteriorated hugely in December, but nevertheless finished the year at a deficit of around 2% of GDP, we estimate.

Meanwhile, Ankara’s policy interventions are getting more and more discretionary and opaque, as it tries to square the “New Economy Model” – read: deeply negative real rates – with a relatively open foreign currency regime, which means the current equilibrium of sorts is a very unstable and unsustainable one.

Now read on...

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