Political and economic update
Turkish Forces, supported by the Free Syrian Army auxiliaries, are slowly pushing back Syrian Kurds in Afrin, but final victory will take months and cost many lives. Turkey is already losing the world opinion and the potential for public backlash is non-negligible if casualties mount.
Washington is negotiating with Ankara to stop the Turkish Army from marching to crossroads city of Manbij West of Euphrates River, currently held by Syrian Kurds, backed by “American advisors”. While a compromise can’t be ruled out, the potential for further conflict is high. The U.S. could stop Turkey in Syria by threatening costly financial sanctions on the Turkish banking system. For unrelated reasons, two reputable Turkish journalists claim the White House or Congress could impose political sanctions on Turkey.
The Operation Olive Branch has been accompanied by yet another crackdown at home, which derailed the rapprochement with the EU. Meanwhile at the home front, a sudden wave of populist measures enacted by the government smacks of early elections, though admittedly there are other explanations.
Signs of acceleration in some growth indicators – like the January manufacturing PMI – are somewhat puzzling, while focused on achieving growth target at any cost, the government has been introducing various stimulus measures. We acknowledge that these developments pose an upside risk to our 3.5%-ish growth estimate for the year, but there may be a Wile E. Coyote dynamic at play in growth data, while the government’s somewhat hastily and anxiously assembled stimulus measures, are very unlikely to substitute for the strong credit and fiscal impulses of last year.
Foreign trade deficit widened sharply in December, and it looks like, based on preliminary data, in January as well, on the back of core imports substantially outpacing core exports.
There was nothing new in the Bank’s first Inflation Report of the year, which is why we took the liberty of waiting for this Weekly Update, to share a few thoughts and numbers.
This week’s key data release is January inflation, which should show a base effect driven drop in the 12-month rate to around 10.7%, from 11.9% in January. The market’s monthly CPI forecast is 1.3%, which is exactly what we have, contingent on a significant drop in food inflation, though.
Since the beginning of the year Cosmo called Turkey an under-performer. He sticks to His line, adding that EM too, might soon sputter.
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