Post-election reflections
Contrary to the gloom and doom permeating the international press, our politics author greets last Sunday’s elections as a significant victory for the Turkish democracy, with his long-term optimism significantly elevated by the vibrancy of the campaign and the intangible victories scored by the opposition. Yet, he shall remain decidedly downcast on Turkish politics in the short-term, because in the words of Erdogan, “the campaign for local elections has now started”.
The AKP-MHP alliance is fragile and transactional. MHP is determined to shape Erdogan’s policies, which the President will find hard to stomach. However, cracks ought to be papered over until after March 2019 local elections. There are a lot rumors but very little credible information about the new cabinet, while Mr. Mehmet Simsek may or may not be reappointed. In any event, as the Global Source Turkey team, we continue to think, as we elaborate inside, that economic policy settings will remain the same, with no credible program of austerity or deep structural reform on the horizon.
In foreign affairs, both the US and EU are willing to negotiate with Erdogan to regain Turkey to the Western camp. In principle, Ankara should be ready to negotiate in earnest, but we don’t know yet whether carrots or coercion will be used in case Erdogan and Bahceli decline the invitation.
May trade deficit came in almost exactly in line with the preliminary estimate, as usual, with the 12-month rolling deficit widening only modestly, and the core deficit shrinking on the back of slowing imports. This, together with the continued slide in the Economic Confidence Index through June, confirm that economic slowdown is becoming rather apparent in Q2, which should turn into contraction in Q3.
Fiscal deterioration is becoming more evident with each passing month, as we shall very likely see in the cash June budget data (to be released this Friday), and as attested to by the Treasury’s borrowing program for July-September, which foresees a domestic debt rollover ratio at over 120% on average.
The consensus CPI-inflation forecast for June is 1.3%-1.4%, which is slightly higher than ours, but, with significant upward pressure from food prices and a substantially weaker lira, risks are firmly on the upside. In any event, we should see both headline and core inflation rise markedly further to around 14% (May: 12.1%) and some 13.5% (May: 12.6%), respectively.
Cosmo predicts “no story, weak fundamentals and lots of political noise” for the summer months.
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