Prime Minister Davutoglu’s departure illustrated the highly unpredictable nature of Turkish politics, lending further credence to our scenario of steadily rising risks for the rest of the year.
We can’t guarantee that Deputy PM Mehmet Simsek will retain his post in the new government, or structural reforms will be on the agenda of the new administration. President Erdogan is already putting his hawkish stamp on a wide range of policy topics, headlined by a new crisis with EU brewing up immediately. His top priority remains the Executive Presidency, which might be introduced via a new Constitution to the parliament in June. He needs to wait for developments in HDP and MHP to see if AKP can garner the 330 votes required to submit the Constitution to a referendum. If the Executive Presidency drive fails, he is very likely to call for early elections.
Cash budget recovered in April, thanks to a rebound in revenues, likely on account of CBRT profit transfers, while primary expenditure growth remained strong for yet another month.
Preliminary trade data suggested that the 12-month rolling deficit should continue to narrow albeit modestly in April, while this week’s balance of payments data should show current account deficit narrowing by another $1 billion or so in March. S&P’s decision to upgrade Turkey’s outlook to stable from negative is of course positive, but is mostly technical, given that the agency already rates Turkey below investment grade.
Cosmic Strategist is deeply demoralized by the ouster of Davutoglu, predicting that the CBRT will be under monumental pressure to loosen monetary policy at the expense of currency stability. Investors are yet to discount the possibility of a contentious referendum on the Executive Presidency or early elections. Unfortunately, Turkey has no story, declining carry and a lot of issues...
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