Stuck between austerity and poor voter sentiment
It is incumbent upon the Turkey observer and investor to understand the import of a victory in municipal elections for the ruling AKP-MHP alliance. Upsets in Ankara and/or Istanbul, or a visible drop in the joint vote of the alliance could jeopardize its future in power. This is the framework in which all decisions diplomatic and economic will be made until the day the ballots are cast.
Poll data is still sketchy, but AKP seems to be losing altitude with a very large number of undecideds, who may migrate to opposition ranks or stay home, AKP sources report. Drastic economic stimulus may be needed to regain their hearts. Relations with the US is improving undergirding investor sentiment, which is an equilibrium AKP would like to preserve at least until after the elections. It is too early to make firm predictions, but a deal in Syria could lead to Turkey moving back to the Western alliance.
Industrial production slipped further into negative territory in November, suggesting that the contraction in GDP might have deepened in Q4.
The central government budget closed 2018 broadly in line with the revised targets under the NEP, but underlying trends are very poor. Non-tax revenues surged in 2018, which will be hard to fully replicate this year; weakness in tax revenue is likely to last and primary spending should prove difficult to contain against a backdrop of poor growth, and interest expenditures are on the rise.
The unemployment rate continued to creep up in October. We stick to our view that the worst, unfortunately, is yet to come.
Cosmo considers the current strength in currency and bond markets “fleeing”. AKP is very likely to prioritize winning elections over fiscal-monetary discipline in the coming months, spoiling investor sentiment.
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