Turkish markets are waiting on the details of the budget

Turkish markets are waiting on the details of the budget

The markets were relieved by the release of United States Pastor Andrew Brunson.

Will this period of relief go on for a long time? Market players are of the view that current measures and recent judicial decisions will provide a brief space to breathe, yet it will be new decisions and measures in the period ahead that will be defining the trend.

Local and foreign investors share the view that current measures are insufficient.

How is the two-month reduction in the prices campaign seen by the markets? Although this might provide for temporary optimistic figures in inflation, market players think this might be an initiative that could later lead to bigger problems.

There are worries that these kind of forceful measures might even further disrupt the perception on the Turkish economy, especially among the foreign investors. Markets expect to see radical measures instead of temporary measures.

The expectation that the tension with the United States will cease following the release Brunson has led to the strengthening of the Turkish Lira against the foreign currency.

Will that continue? Market experts do not expect foreign exchange rates to decrease further.

Will they go up? They think there could be an upward movement depending on new expectations.

The first thing the markets will be looking for in the period ahead is the draft law on the 2019 budget that will come to the parliament on Oct. 17 and the meeting of the Central Bank on Oct. 25. A serious hike in interest rates could lead to a strengthening of the lira, yet experts think this is a low probability.

The drop in growth rates and how this will be explained are the main elements that will be scrutinized in the budget. The prevailing view is that the government is ready to live with lower growth rates but it will be difficult to accept a serious drop.

That is why even if the growth rates in the New Economic Program (YEP) were to be seen in the budget, there will be serious questioning on how it will be realized and whether or not these numbers will only stay on paper.

Market experts will scrutinize the reduction levels in investments, the foreign currency levels, the rise in employee wages and the calculation of expected income tax in the budget, which expects to see a rise in the spending of the Religious Affairs Directorate, as well as the military.

Account deficit and unemployment

For some time, we come across the euphoric recognition of a drop in the foreign trade deficit, as well as a drop in the account deficit. Yet, these numbers are not seriously questioned and are not scrutinized enough in terms of what they indicate and whether they show certain risks or not.

It is clear there is a serious contraction in the economy.

The unemployment figures, which were made public on Oct. 16, show what the unstable drop in imports implicates, despite many who rejoice.

We will see the effects of deterioration in financing the account deficit at a later stage.

The rise in unemployment levels are an indicator of the contraction in the growth levels. The continuation of this contraction will push unemployment figures even further up.

Andrew Brunson, Turkish economy, Finance