Reinventing populism

TURKEY - Report 10 Feb 2019 by Murat Ucer and Atilla Yesilada

A recent AREA poll confirms our assertion that the AKP-MHP alliance is slipping in nation-wide standings, while city-by-city polls by several agencies reveal it could lose three key races to the opposition. The primary reason behind voter discontent appears to be poor economic management, which President Erdogan is very likely to address in the coming months by the way of populism.

So far, what we call “populism ala Turca” or “by stealth” has done serious damage to the fabric of the economy without visibly improving voter loyalty for AKP. It may be time to bring out the big guns.

According to cash budget data, primary expenditures surged in January, but the budget was saved thanks to earlier than usual profit transfers from the CBRT.

Imports dropped sharply in January, according to the preliminary Ministry of Trade data, while export growth remained modest, attesting to continued weakness in economic activity in the first month of the year. On a more encouraging note, overall credit growth picked up visibly in the week through February 1st, but it is still in negative territory and it remains to be seen whether the pick-up will last, taking us noticeably and sustainably to positive growth territory. We remain skeptical.

There are several important data releases this week, including December BOP numbers. We forecast the current account deficit at around $1.2-$1.3 billion, which, if true, would take the annual deficit for 2018 as a whole to around $27.5 billion, or some 3% of GDP.

The S&P will review Turkey’s sovereign rating this week (on February 15th), which ranks Turkey credit 3 notches below IG -- deeper into junk territory than the other two top rating agencies -- with a stable outlook. An upgrade to the outlook would not be surprising, to which the market impact in any case would probably be muted.

Cosmo picks up where the Political Analyst leaves off, emphasizing that locals have already caught wind of the coming attack on economic rationality. He thinks the final surge of pork-barreling will not go unnoticed by the heretofore sanguine investment community, but can’t quite guess, whether the vigilantes would revolt before, or after the elections.

Now read on...

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