Page 4 - TURKRptFeb20

1.0 Executive summary
The chance of snap polls in 2020 remains top of the agenda . It looks like Erdogan plans to continue to ping-pong between Donald Trump and Vladimir Putin in foreign policy. The US sanctions threat to Ankara has not gone away, but to impose measures officials need the approval of Trump. Syria is still a mess and it is a mess that will not be solved within 2020.
The Turkish financial markets remain subject to undeclared state-conspired interventions, the media and judiciary quail before the powers that be. President Erdogan and his finance minister son-in-law Berat Albayrak essentially release official data in advance of official publication dates , for instance “Turkey has grown 5% in Q4 and 0.5% in 2019 as a whole”. There is a 5% growth target, or ‘early official data release’, for 2020 . For strategy, think cheaper loans... and more cheaper loans.
“ Policy rates along with inflation will fall into the single digits in the near future and remain there” is another official line. End-2019 inflation came in just below the central bank forecast of 12% , just as the finance minister predicted. In the January edition of the quarterly inflation report, the end-2020 inflation estimate remained unchanged at 8.2%. Turkish lira deposit rates are below official inflation. January saw new records in FX deposits .
The banking industry’s net profit declined 8% y/y in 2019. Albayrak criticised private banks for taking a profit-oriented approach . HSBC is reportedly considering selling its Turkey business. A competition probe was launched against 20 local lenders . Yapi Kredi and Akbank were fined for violating insurance law. The banking watchdog “ advised banks not to distribute 2019 profits ”. Albayrak and the central bank governor said that the TRY “looks competitive” at current levels .
Public lenders have so far managed to defend the local currency at the cost of burning through huge amounts of central bank reserves (estimated at over $30bn), while the equity market is under an unofficial suspension with a short-selling ban introduced on the most liquid banking stocks. The squeeze on lira liquidity in London is introduced whenever required. The lira weakened 11% in 2019, bringing its two-year losses to 36%. Albayrak and the central bank governor confirmed “state banks are active in FX market”.
The current account is deteriorating . Starting from October, a rise in imports was observed along with the renewed loan growth cycle. Given the deteriorating global outlook for 2020, export growth is expected to remain limited. Even a contraction may be seen. The EU remains the biggest export market for Turkey, buying around one half of its exports.
The financing of the inexorable current account deficit is expected to be conducted via Erdogan’s swap deals, unidentified inflows through the net errors and omissions account and real sector short-term trade credits. Capital inflows are expected to remain weak due to deteriorated market conditions on the Borsa Istanbul and government bond markets. FDI inflows remained weak in 2019 and a radical change is not visible for 2020.
External financing needs for 2020 remain high . Turkey is still obliged to repay or refinance about $150bn in external debt in 2020. The magnitude of
4 TURKEY Country Report OUTLOOK 2020 www.intellinews.com