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CACIB on Turkish Macroeconomic Conditions and the Impact of the Earthquake

TURKEY
  • President Erdogan is likely to claim victory over financial instability, as inflation has declined from very high base levels, with the current economic framework likely remaining in place ahead of the election. In CACIB’s view, the pace of depreciation will remain controlled. CACIB forecast USD/TRY at 19.10 in March (and 19.30 in June).
  • The TRY’s increased stability is key to controlling imported inflation and should contribute to disinflation going forward. CACIB forecast inflation possibly reaching close to 35-40% in April. What happens after the election is another story, but until then, the TRY will continue to display a combination of high carry and limited FX volatility.
  • Accommodative budget policies ahead of the elections should support growth. These measures include a 55% minimum wage increase, early retirement for 2m workers and an increase in public sector pensions. CACIB expect GCP to slow down from 4.9% in 2022 to c3.0% in 2023.
  • Since President Erdogan’s administration has favoured a boom in construction in recent years, some critics have claimed that part of this boom was improperly implemented, possibly resulting in low-quality construction standards that may have exacerbated the damage from the earthquake. Should the theme of anti-Erdogan rhetoric intensify, bolstered by the opposition forces, there could be a government response, which may take the form of a tightening political stance domestically, or an enhanced sovereign stance outside the country.
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