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According to Carla Slim, economist at Standard Chartered, the worst may be over for the business cycle of the Turkish economy, but the path to recovery is not straightforward.

Key Quotes

“We believe GDP should return to growth in Q1-2019 on a quarterly basis (data to be released on 31 May), which means Turkey would have come out of ‘technical recession’ (characterised by two consecutive quarters of negative q/q growth). This view appears to be supported by industrial production, retail sales, economic confidence and PMI data, which have recently improved at the margin.”

“Looking ahead, turbulent markets and uncertainty over the outlook could weigh on GDP performance beyond Q1, however.”

“Persistently elevated risk perception clouds the outlook. Q1-2019 was characterised by impending signs of stabilisation following last summer’s FX crisis. A protracted period of volatility clouds Turkey’s outlook, which makes restoring confidence key in order to address risk perception.”

“We see both the suspension of the weekly repo window and any upcoming cabinet re-shuffle in this vein. Against this backdrop, the Central Bank of the Republic of Turkey (CBRT) will likely be reluctant to embark on an easing cycle to avoid exacerbating existing pressures.”

“We maintain our 2019 policy forecast at 22.0%, but push back the timing of our first cut to 25 July instead.”