Political and Economic Update

TURKEY - Report 19 Feb 2017 by Murat Ucer and Atilla Yesilada

The politics section starts with the summary results of recent polls, which show the Yes votes ahead by 2 percentage points or so. Other evidence points to an even closer race. AKP’s insurmountable advantages and the crackdown on No campaigners should secure the ballot for Erdogan, but it will be a roller-coaster ride for the next two months.

In Syria, Erdogan seems determined to send the Army to Kurdish-occupied Manbij, which will prove costly and might not even succeed. The Trump administration is currently somewhat disoriented, which means Turkey’s request to deal with Pastor Gulen is not a high priority. A joint military campaign to Raqqa is still not ruled out, but Turkey’s offer so far is wholly inadequate.

Back to the home front, we present some disturbing evidence that factions or names in AKP are arming party members and auxiliaries. The motives are vague, but the implications are horrible. Turkey’s combustible social dynamics is becoming explosive.

The current account deficit ended the year somewhat lower than our last estimate, but it is still hovering around 4% of GDP and the financing side is a real problem – which, other than during brief periods of respite, will continue to be so.

We understand the incentives and the short termism involved, but the recent lira rally would probably make the behavioral finance types proud of their theories.

Budget was strong in January, but it would be too early to conclude all clear, while the continued deterioration in the unemployment rate yet again explains why the government is bordering on panic, announcing a new incentive or a measure with each passing day.

Cosmo is in one of His rare cheery moods, believing TL-denominated assets might rally further in the next month. Sticking to his credentials, He does predict doom afterwards.

Now read on...

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