Week of September 4
With our politics author, Mr. Yesilada, on his way back from a short break, we devote this Tracker to a review of the economic data alone. Mr. Yesilada will begin with his updates in the next day or two on the past week’s myriad of political developments, which included, inter alia, another incursion by the Turkish Army into Syria, the resignation of Interior Minister Mr. Efkan Ala (apparently upon President Erdogan’s request and on (lack of) effectiveness grounds), further FETO-related purges that have extended to academics (many of whom are, incidentally, the signatories of the Kurdish peace initiative), courtesy visits from a senior EU official (albeit with little tangible results), and a first serious rift of sorts emerging between President Erdogan and the main opposition leader Mr. Kilicdaroglu -- since the July 15th coup attempt, that is -- over the undermining of judicial independence by President’s decision to hold the opening ceremony for the judicial year at the Presidential Palace.
Turning to economics, our quick take on a few data releases since the coup attempt suggests that the economic slowdown -- that had, in our view, already begun prior to July 15th -- has probably deepened, though it is too soon to speak of lasting effects to the economy. Yet, we maintain our expectation of a relatively sharp slowdown in H2, with growth ending the year at around 3%.
The July trade data led to a sharp narrowing in the 12-month rolling trade deficit to $55.8 billion down from $58.1 billion in June, as imports shrank more than exports, but according to preliminary (Ministry of Customs and Trade) data, the 12-month rolling deficit has broadly stabilized in August (shrinking by only $0.2 billion).
The CBRT continued to take action to release the lira squeeze and/or dress up its F/X reserves, the latest of which involved an adjustment to the gold tranche to the Bank’s ROM facility. These measures must help banks at the margin, but as we’ve argued elsewhere, in the absence of a significant pick-up in inflows and a substantial improvement in the Bank’s net foreign asset position, the lira liquidity is unlikely to ease up much – structurally speaking.
There are several important data releases this week. On Q2 growth, we expect a figure of around 3%, y/y, slightly lower than the consensus forecast, while we forecast the 12-month CPI inflation to decline to around 8.2%-8.3% from 8.8% in July, assuming the food price reversal that the CBRT had signaled, will materialize. Finally, we estimate the July current account deficit (CAD) at some $2 billion, which, if true, should reduce the 12-month rolling CAD to just over $28 billion from $29.4 billion in June. With trade deficit having stabilized and the decline in tourism revenue continuing, the CAD should begin to widen gradually in August.
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