Keep calm and carry (on)
Preventing regime change in Iran has become the number one policy priority for Ankara, which is rightfully mindful of negative spillovers across the border. The politics author thinks a peace deal between Iran and US-Israel is not very likely, thus sharing Ankara’s concern.
At home, it is calm before the storm, as President Erdogan suddenly stopped its frontal assault on CHP, for reasons that can only be speculated about. Nevertheless, his base case remains in addition to Ekrem Imamoglu, Mansur Yavas and chairman Ozgur Ozel being slapped political bans before the next elections.
MHP leader Bahceli is scrambling to expedite the Peace Process, where pro-Kurdish DEM Party is heartbroken because Ankara facilitated the humiliating defeat of Syrian Kurdish entity AANES at the hands of the Syrian National Army. Erdogan must make significant sacrifices in terms of his executive powers, if he wants to appease Bahceli. Will he? Apropos Syria, al Sharaa finally managed to unite the country, which is very likely to increase foreign aid and indirectly help the Turkish economy.
Trump’s friendship with Erdogan also promises economic and political upsides for Turkey, as the former attempts to pry away Iraq from the Iranian orbit and actively works to usher a final peace agreement between Armenia and Azerbaijan.
The state of Turkish macro -- and our thoughts on the outlook – is not a whole lot different from our last quarterly/forecast report released in December, but a brief update -- with a special focus on the issues that would be on, let’s call it, “a carry trader’s macro watch list” -- should nevertheless be useful, we thought.
To be sure, we do not see an imminent risk to our –admittedly fairly dull and consensus-ish-- “muddle through” scenario (fleshed out in the mentioned report), and therefore to “carry trade” dynamics, but what would such a watch list include? Sticky inflation and the CBRT easing cycle, the sustainability of CBRT’s USD/TL policy, balance of payments dynamics and growth-employment nexus should top the list, we would surmise. We conclude the section with a few words and thoughts on a potential positive scenario…
Now read on...
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