Political and Economic Update
Today’s Weekly Update starts with a report from the Frankfurt Global EM conference organized by Toronto Dominion Securities and Global Source Partners, where interest in Turkey was buoyant, yet risks were underestimated, in our opinion.
On the political front, at home, AKP officials deny rumors of early elections, with President Erdogan believed to be planning major staff and policy changes once he takes over the party in the final week of May. While his new course may take Turkey towards democracy and reforms, it is more likely that he will tighten the screws.
Erdogan’s visit to Moscow helped generate the agreement on de-escalation zones in Syria, which might lead to a truce and is certainly very helpful to Turkey in terms of keeping the border province of Idlip out of Assad’s reach. Yet, it appears Putin shall continue to support PYD-YPG (Syrian Kurds) at Erdogan’s dismay.
More disappointment might be in the cards for Turkey’s President when he meets Trump who is reported to be on the verge of ordering the siege of Raqqa – also with the Syrian Kurds, who remain Turkey’s number one enemy in the region. We don’t expect a break-up in the Turko-American relationship, but Trump should be wise enough to send Erdogan home with a consolation prize.
April manufacturing PMI data showed that the cyclical uptick in the Turkish economy continues, but – as we report very quickly from the Frankfurt conference – we have serious doubts about its sustainability. The key releases of the week are March current account deficit (CAD), along with March industrial production and April cash budget data. We forecast CAD at around $3 billion, slightly below market consensus, which would correspond to a visible shrinkage in the 12-month rate.
Cosmo claims that carry rallies don’t last and at the end fundamentals overcome – and that Turkey’s fundamentals do remain weak.
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