Reform hopes, harsh realities

TURKEY - Report 10 Jan 2021 by Murat Ucer and Atilla Yesilada

Turkish sources herald that the long-advertised “reform package”, including a slew of measures to improve investment environment, could be unveiled by President Erdogan by the end of January. The contents leaked to the press thus far suggest it is going to be a big flop. Yet, let’s stay optimistic under the comforting glow of a “Bold New World” predicted by many prophets of the future, and say, “this is only the start of something more meaningful to come”.

We are not prophetic, but lucky, in the sense that students at Bosporus University triggered the first large-scale protest in Turkey in the last four years, as the politics author has long been fearing. It could get worse, for a perverse reason. The administration failed to deal with these “vandals” firmly, “losing the momentum” as in chess.

In our base case scenario of a persistent epidemic and deepening economic misery, the potential for these protest to morph into something bigger is non-negligible, so heads up!

AKP-MHP, as well as Erdogan (to a lesser extent) are dropping in the polls visibly. Talk of amending electoral laws is on the agenda again, but short of a sustainable economic recovery and beating COVID-19 in a final victory, gerrymandering will not rescue AKP-MHP.

In foreign policy, the rhetoric has softened, but policy stances have not. For the second time, we say “well, this is just the beginning of bigger things to come”

The December manufacturing PMI showed the output sub-index is firmly below the 50-threshold, suggesting that the economy has begun to visibly lose momentum.

Trade deficit was $4.6 billion in December, which meant that the 12-month rolling deficit has broadly stabilized, but core import growth rate, we reckon, is still elevated, while gold imports appear to have continued.

Cash data confirmed that the overall budget deficit was likely below 4% of GDP in 2020, about a full percentage point below the NEP estimate, but we add a few caveats inside.

There are a number of important releases this week. We forecast the November current account deficit at around $3.5 billion, broadly in line with the consensus (median).

Cosmo declares Turkish markets and financial assets safe and probably lucrative through January and February. But March is a different story.

Now read on...

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