While we were gone

TURKEY - Report 03 Jan 2021 by Murat Ucer and Atilla Yesilada

In our first politics commentary of the year, we refrain from making bold predictions, limiting ourselves largely to identifying salient developments and emerging trends since our last report(s).

The natural gas pipeline TANAP delivering gas to Europe and a free trade deal with the U.K. headline the “good news”. Alas, there were no signs of reform from President Erdogan, as oppression and divisive talk has been getting worse. Also, the outbreak is yet to be brought under control, as the U.K. strain of the COVID-19 virus arrives in Turkey and the vaccination campaign is delayed till end-January.

Our second essay focuses on the “state of the nation” using recent polls. Steady but very slow declines in Erdogan’s and AKP-MHP’s popularity seem to continue. The nation is scared of the epidemic, deepening poverty and has little hope that the administration will set things right in 2021.

With Congress overriding Trump’s veto on NDAA, Biden has gained a powerful tool to persuade Erdogan to ditch S-400s. Erdogan expresses a willingness to negotiate, but doesn’t sound too willing to compromise. Time may soften his views.

On the Econ side, we offer a quick rundown of the key data releases of the past 2-3 weeks. In a nutshell, some conflicting data notwithstanding, the economy is slowing, which should become more visible during the first quarter of the year. The trade deficit, as expected, was large in November, on the back of weak exports, strong imports, the latter even excluding gold.

The budget deficit offers some good news, because based on the November outturn and some rough estimates for December, it will likely close the year at less than 4% of GDP, but this does not mean that Ankara has a lot of "fiscal space” to deal with the economic slowdown and/or the second COVID wave.

Meanwhile, it is worth pointing out that aside from the rate hikes, the new economic management has made almost no progress toward formulating a coherent and credible macro framework/program, which we still think is very important to sustain the current optimism.

His Cosmic Excellency sees steady inflows into TL and Turkish assets until sometime in March. Of course, there are always “downside risks”.

Now read on...

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