New structures, old challenges
The new economy czar Mr. Albayrak made his first remarks on the economy, which were encouraging, but lacked specificity. Needless to say, delivery and implementation will be the key, which, to say the least, is an extremely challenging mission to fulfill under the circumstances. In fact, with no silver bullets available, it is hard to envisage how the Turkish economy could manage a soft landing of sorts, without a dramatic change of “vision” and a comprehensive program.
Fitch downgraded the Turkish sovereign by another notch and placed outlook on negative watch, broadly as expected.
The current account deficit came in higher than forecasts in May, while there were virtually no (net) inflows through the financial account, with the deficit hence financed by unidentified inflows and reserve drawdowns. The 12-month rolling current account deficit has likely peaked, and should start declining in June/July, yet from highly elevated levels and against a very challenging external financing backdrop.
As attested to by the intensifying news flow and our own consultations with investors, credit crunch/NPL problems are becoming a top investor concern.
As for the upcoming data releases, we shall see the June budget on Monday and May industrial production data on Tuesday. Based on Treasury cash data, which we’ve discussed briefly last Sunday, we should see a massive deterioration in June budget figures, while May industrial production data should make the Q2 slowdown more visible, very noisy nature of the series notwithstanding.
As you will recall, we had planned a monthly report for today, but the fast-changing political and economic landscape has compelled us to proceed with occasional notes instead. We shall follow up this brief econ note with a political update during the week, and release our flagship Quarterly report at the end of this month, as planned.
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