Under pressure

TURKEY - Report 18 Aug 2019 by Murat Ucer and Atilla Yesilada

Turkey’s political risks shift quickly, but the sum-total never declines. Erdogan administration survived the summer without a disaster by swapping one threat for another. Alas, it wasted very precious time on structural reform and fiscal austerity, dithering on how to end AKP’s decline in popularity. It has probably found a new strategy, the politics author thinks, which encompasses even bolder economic experiments as well as kicking the can down the road in foreign policy.

The pressure on President Erdogan is intense, who is besieged by his intra-party rivals Messrs. Babacan and Davutoglu, as well as CHP, IYIP, SP and their secret partner HDP, riding the wave of public discontent in ingenious ways. Unless Erdogan sets the economy on a path of rapid growth by winter months, when living conditions will get very harsh for his voters, his throne will be under attack.

The radical experiments, we speculate, his team has crafted for him and the potential backlash will be the main subject of this report’s politics essay. However, we shall also spend some lines on the possibility of a Congressional sanctions bill in autumn months to retaliate for the purchase of S-400 anti-missile systems and the brewing crisis in Idlib, which may pit Ankara against Moscow and Damascus.

In the econ section, we provide a brief update, in a Q&A format, on where things stand since the publication of our recent quarterly report (of July 28, 2019).

In a nutshell, things are proceeding more or less according to the script that we sketched out there. Growth is looking weak -- and bumpy; inflation rose in July but should start decelerating in August before rising again in November-December; and the 12-month rolling CAD yielded a modest surplus in June, which should rise further in July, but external financing remained weak with private sector continuing to deleverage.

Looking ahead, monetary and fiscal policies should become ever-more expansionary and policy discretion and data transparency concerns should intensify, we think, as Ankara desperately tries to boost growth.

Combined with growing political risks, this context is highly likely to trigger a backlash, though the timing of it remains as elusive as ever.

Now read on...

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