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JP Morgan Say Erdogan in an Advantageous Position to Win Run Off

TURKEY
  • The incumbent President Erdogan is in an advantageous position to win the second round of presidential elections, JP Morgan say, though it is hard to predict to whom Ogan supporters will cast votes in the second round. That said, Erdogan’s vote lead in the first round, and the parliamentary majority won by the ruling People Alliance, seem to put Erdogan in an advantageous position.
  • The degree of any shift in policy will matter for the economic outlook. If policies are shifted to greater orthodoxy, the disinflation process will be faster through the expectations channel. If the shift is modest, JP Morgan believe that a macro adjustment is likely through a contraction in lending by state banks and less fiscal stimulus in 2H23.
  • They also anticipate some relaxation in macro-prudential regulation such as in securities maintenance obligation for consumer and commercial loans.
  • The scenario of ‘modest return to orthodox policies’ involves higher USDTRY, but with a more protracted timeline and lower FX volatility, JP Morgan say. They had judged that pre-election stimulus, pent-up FX demand from corporates and the need to replenish FX reserves would likely lead to higher USDTRY - towards 24-25 levels within 2-3 months of the elections. However, a continuity of policies would argue for low FX volatility and a more uncertain timeline for this to occur.
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