Political and Economic Update
The arrest order by a New York court for the former Economy Minister Mr. Zafer Caglayan could be the harbinger of new tensions between Turkey and the U.S., as well as a period of trouble for the banking industry. Several EU members went on record turning down Germany’s request to end accession talks with Turkey, but economic sanctions are still a possibility, because Ankara continues to antagonize Germany.
There is little new that is newsworthy at home, except a survey about the nation’s attitudes, which provides modest support for our thesis that AKP’s luster is wearing off. Among decided voters, the party slipped to 43%.
The President of Turkey’s Wealth Fund, Mr. Mehmet Bostan, was sacked on Friday, exposing the infighting as well as the political struggle to gain control of $200 billion in assets. The Wealth Fund is a white elephant that is going to oblivion.
July industrial production and August manufacturing PMI data showed that growth continued to stay strong in Q3, as expected. Imbalances seem to be growing too, however, as attested to by the August inflation print (on which we’ve reported during the week) and by the preliminary trade data that showed a further widening in the trade deficit in August, with import growth outpacing export growth.
The week is packed with several important data releases (e.g., NIA Q2 on Monday) and an MPC meeting on Thursday. Growth forecasts are typically in the 5%-5.5% range, y/y, with which we concur (Q1: 5%). As for the MPC, we expect no change in short-term rates, given the backdrop of strong growth and poor inflation outcomes.
Cosmo is still bullish for September, but after the August CPI figures, His concerns for a prolonged bear market in government bonds has escalated.
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