Political and economic update
As Turkey and its allied militia slowly but surely advanced into Kurdish-held Syrian canton of Afrin, President Erdogan unveiled an ambitious plan to resettle Syrian refugees along the border, which reinforces our view that Turkey intends to stay in Syria for the long haul. The plan is clever, but extremely risky. Ankara also contemplates to capture the City of Idlib before Assad’s army gets there, which means a second front in Syria and commitment of more land forces.
The status of the Kurdish-held Syrian city of Manbij continues to be a source of tension between Turkey and the U.S. where both sides are talking up military measures. The U.S National Security Advisor Gen McMaster and Secretary of State Tillerson will be visiting Ankara as you read this report, where the American side is expected to introduce a peace plan. If Ankara refuses to dial down its objective of getting rid of PKK-allied Syrian Kurds, the White House might resort to sanctions. We understand that a secret panel already debated three types of sanctions that can be exploited by the White House to blackmail Ankara. We think AKP might call snap elections and then compromise on Syria.
Cash budget was weak in January, primary expenditures growing a lot faster than revenue. Even worse, the combined cost of fiscal measures already approved under the latest omnibus law – and probably some further (tax expenditure) measures to come to support machinery and equipment purchases -- suggests that this year’s budget deficit target has already been significantly breached.
Industrial production growth was strong in December, suggesting only a modest loss of growth momentum in Q4 as a whole. We insist, however, that our “endogenous growth slowdown” thesis is being put off, not invalidated.
There are a host of important data releases this week. We forecast the December current account deficit at around $7.2-$7.3 billion, which, if true and without revisions, would imply an annual deficit of close to $47 billion, or some 5.5% of GDP.
On the corporate front, the request by cookie and candy giant Yildiz Holding (of the Ulker brand) to reschedule up to $7 billion of loans brings to daylight the rising stress in balance sheets. We looked at the issue briefly from the perspectives of private sector resilience and bank profitability.
Cosmo explored how hysteria in global markets would affect Turkey. It certainly won’t make things better.
Now read on...
Register to sample a report