Q&A on politics and the economy
Support for both President Erdogan and the AKP-MHP alliance seem to be declining in the polls, as the epidemic flares up once again, while poverty and unemployment are wreaking havoc across the nation. The base-case scenario is Turkey remaining under restrictions through the second quarter of the year, which will deepen the stagnation. While it seems counter-sensical, Erdogan calling snap elections, or being abandoned by his ally Bahceli are in the cards.
Much will depend on how Erdogan handles pressure from Biden, with EU providing an assist to the latter. While there is intelligent commentary about Biden choosing a frozen conflict with Erdogan rather than new sanctions, evidence suggests otherwise. Our political analyst still expects Erdogan to compromise, but not before another “currency event”. Lately, he is also beginning to suspect that President Erdogan is becoming less rational or more selfish in his decisions, choosing preservation of his power and fortunes, over his key constituencies. While this behavior is alarming, it has not reached the point for our political analyst to abandon his base-case scenario of a truce with the West.
There are three main events to watch in February, he concludes: the unveiling of the (in)famous Reform Package, the NATO-EU summit and a new wave of infections.
On the economy front, growth is still going relatively strong, but there is some loss of momentum in the December/January data, while we continue to anticipate the weakness to become more visible later this quarter. Thanks to a rather euphoric, “glass-is-more-than-half-full” sentiment prevailing in the foreign investor and domestic analyst community nowadays, which, incidentally, is finding every step taken by the CBRT and the new economy team impressive, we think what’s been done so far, while quite an improvement from the pre-November nightmare, is not enough to reduce inflation visibly this year.
Nor is it enough to put Turkey on a sustainable growth path. We insist that a comprehensive program is a must for that, but so far, we see no sign of it. So, we conclude, keep calm and carry (on), but try to avoid perhaps getting too carried away in the process.
Please note that there will be no Weekly Tracker today.
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