In dire straits
The fears of the political analyst regarding sudden early elections, i.e., sometime in 2027, have faded, as Erdogan’s unofficial spokesperson insisted on 16 April 2028, while CHP leader Kemal Kilicdaroglu walked back from his promise of unconditional support for any date. Yet, we are still following signs of pork-barreling and potential harassment of Mansur Yavas and/or Ozgur Ozel to divine a more precise date.
The Fund Scandal remains at the top of the national agenda, with scant hope participants will receive adequate compensation, while probes and detentions have now spread to a former AKP minister, the Capital Markets Board, Borsa Istanbul, the Communications Technologies Oversight Board, the BRSA and potentially ExIm Bank.
Manufacturing PMI retreated further in October to 47.3 (from 47.9), which corresponds to contractionary territory, even by Turkey-specific thresholds. It is hard to know how much of this deterioration can be attributed to (the direct or indirect effects of) the Fund Scandal, but we tend to see it as part of the secular decline that was already underway before it.
Regarding the impact of the latter, the CBRT released a useful note showing that the share of real sector firms directly exposed to the funds under liquidation is limited, and that their credit access is continuing, so that contagion appears limited, with the caveat that the study does not “provide a conclusion about the overall impact of developments in the fund market on the real economy”.
Although it is still too early to say much on the topic, we are trying to monitor the impact through various indicators such as bounced checks, credit developments, number of firms entering financial restructurings and so on. The effect is arguably there, but not dramatic -- so far.
The cash budget deteriorated in October, driven by a huge jump in interest payments, but the yearend (accrual) target of 3.1% of GDP –with perhaps a slightly higher figure on the cash side-- should be achievable.
The news is encouraging on the external front. The 12-month rolling trade deficit narrowed in October, as the rise in the energy bill was more than offset by improvements in core and gold balances, while reserves, particularly net reserves, appear to have recovered visibly during the 4 days of last week, though this was partly driven by the rebound in the gold price.
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