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bne February 2018 Outlooks 2018 I 35
Under normal circumstances, the
next presidential and parliamentary elections should be held in November 2019. Some pundits and politicians, however, speculate that there are signs that the government may call snap polls. Deniz Zeyrek, a columnist at Hurriyet Daily News, quoted CHP leader
Kemal Kilicdaroglu as saying that the government could call early elections “before the financial situation gets worse”. According to Zeyrek, Meral Aksener, the popular nationalist
leader of the newly founded IYI Party, told him that there was a rumour
that elections could be held on July
15, 2018, which will be the second anniversary of the failed coup attempt.
However, Erdogan has clearly stated that the elections are to take place in 2019 as planned. According to an October survey by MAK, a polling company thought to be close to the AKP, 48% of respondents said they would vote to re-elect Erdo- gan. He actually needs at least 50% of the votes to serve another term but he can most probably rely on the Nation- alist Movement Party (MHP) which
has closely cooperated with him since the failed putsch. According to polling companies Gezici, Optimar and Istanbul Ekonomik Arastirma, public support for MHP stood at 8.8%, 6.4% and 6.3%, respectively, near the end of last year.
On the international front, Ankara’s relations with Washington have also soured, while there has been an eyecatching rapprochement between Ankara and Moscow that – especially given Turkey’s confirmation that it is to purchase the Russians’ S-400 anti- aircraft advanced missile defence system – has damaged the country’s relationships in the Nato alliance.
Ankara has been infuriated by Wash- ington’s continued refusal to hand
over Erdogan’s arch foe – the elderly cleric Fethullah Gulen who lives in self-exile in rural Pennsylvania – whom (despite his strenuous denials) the Ankara government says masterminded the coup attempt, and also by the US's arming of its Kurdish allies in Syria, and now the Manhattan federal court guilty verdict brought in against Halkbank
deputy CEO Mehmet Hakan Atilla for breaching sanctions against Iran.
On the economic front Turkey moves into 2018 with an overheating economy and a big question mark over whether Erdogan is interfering with the central bank’s monetary independence. With double- digit inflation at a 14-year high, and a vol- atile TRY – which recovered to 3.75 to the dollar by the first days of this year, but sunk to an all-time low of 3.98 as recently as last November 22 – economists have been crying out for substantial tighten- ing. But, with Erdogan in the background declaiming the merits of his unorthodox theory that it is loosening that is really needed, the central bankers only agreed to a minor rate rise at their last mon- etary policy meeting in mid-December.
GDP growth accelerated to a stonk-
ing 11.1% y/y in the third quarter of 2017, from 5.3% in Q1 and 5.4% in Q4. That was mainly on the back of house- hold consumption, which increased
by 11.7% in Q3 from a low post-coup attempt base a year earlier, and the government’s massive TRY 250bn credit guarantee fund to support bank lending to enterprises. Unemployment remains above 10% despite the buoyant growth.
However, growth is forecast to slow
in 2018 and beyond once the fiscal stimulus is rolled back. The OECD, for instance, forecast in November that economic expansion will slow to 4.9% in 2018 and 4.7% in 2019. In the same month, Fitch Ratings slashed its GDP growth forecast for the Turkish economy in 2018 to 3.9% from 4.1%.
According to Deutsche Bank, economic activity looks set to remain buoy-
ant throughout 2018 following some deceleration in Q4 2017. But the bank
warned in December that geopolitical and domestic political risks are on the rise. The slump in the TRY, among other factors, pushed the annual consumer price inflation rate to a 14-year high
of 12.98% in November. The OECD expects the rate to ease to 9.9% next year and to 8.9% in 2019, but the coun- try’s central bank in December kept its inflation target at 5% for 2018-2020.
One side effect of the weak currency and strong economic growth is the cur- rent account imbalance. The country’s 12-month current account shortfall wid- ened to $41.9bn in October, the highest figure seen since 2015. In the first 10 months of 2017, the current account def- icit surged nearly 34% y/y to $35.3bn.
According to OECD estimates, the current account deficit will increase to 4.9% of the country’s national income next year from 4% in 2017.
The weak lira caused a clamour for tight- ening from the central bank in December, despite Erdogan’s demands for cheaper lending. Despite the pressure, however, the regulator only adopted a 50 basis point rise in the late liquidity window rate to 12.75%. That disappointed investors and worried analysts who said an addition of at least a 100 points was badly needed.
In the revised medium-term programme, the government set the budget deficit targets for 2017 and 2018 at TRY61.7bn, or 2% of GDP, and TRY65.9bn, or 1.9% of national income, respectively. The gov- ernment has earmarked TRY673bn for expenditures for this year and TRY763bn for 2018. Revenues targets for this year and next are TRY1.01tn and TRY1.13tn, respectively, while expenditures are expected to rise to TRY1.99tn in 2018 from TRY1.09tn in 2017.
Read the full Turkey Report here:
http://pro.intellinews.com/turkey-outlook-2018-134718/?source=turkey
Read the Iran Outlook here:
http://pro.intellinews.com/iran-outlook-2018-134794/?source=iran
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