Playing for time?
There are no new developments on the S-400s front, which we predict will soon become the hottest issue in Turkish politics. President Erdogan is desperate to have an audience with Biden to market at home, but the White House is not biting. In the coming days, we expect more antics from the Erdogan administration to draw Biden’s attention, which will have the unintended consequence of stirring the wasps’ nest of investor sentiment.
At home, Messrs. Erdogan and Bahceli are busy deploying a wide range of diversionary agendas to delay a much-needed debate on health and economic policy with no effect. As poverty deepens by the day, there is no light at the end of the tunnel vis-à-vis COVID-19 epidemic. Erdogan is stuck and will try riskier maneuvers to get out of the corner, but chances of success are slim to none. “Turkey is at the threshold of major change”. Let’s just hope it shall be in the direction of “better”.
Strong December industrial production data, which brought the Q4 growth rate to 10.2%, y/y, and 4.8%, q/q, makes our 2%-ish growth forecast for 2021 rather unrealistic at this point, given that the so-called “carryover growth effect” is now even larger. Then again, this is purely a technical matter, i.e., we see no reason to change our basic narrative or the baseline scenario as to how the year will play out. It will be a turbulent one, we insist, with possible quarterly/sequential contractions within the year.
The current account ended 2020 with a $36.7 billion or 5.2% of GDP deficit, compared with a modest surplus of just under 1% of GDP a year earlier, while some 85-90% of it was financed from CBRT reserves. Meanwhile, the pace of widening of the current account deficit has slowed, which, of course, is good news, though most likely politically unsustainable. Notwithstanding the relatively constructive investor sentiment at the moment, we still do not see how Turkey can manage to attract enough inflows to finance a sizeable current account deficit this year.
Resident F/X deposits including gold, dropped by about $2 billion in the week through February 5, but that is mostly valuation, we reckon.
We expect the MPC, in all likelihood, to stay put at this week’s meeting on February 18th.
His Cosmicness admits TL assets are still cheap, but rising political risks may prevent further appreciation.
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