Why Americans feel gloomy about the economy despite falling inflation and low unemployment. Inflation has reached its lowest point in 2 1/2 years. The unemployment rate has stayed below 4% for the longest stretch since the 1960s. And the U.S. economy has repeatedly defied predictions of a coming recession. (AP)

Javier Milei's election in Argentina electrifies US conservatives. Milei's proposals include replacing the peso with the U.S. dollar, abolishing the Central Bank, eliminating half of government ministries, cutting ties with China and waging a culture war against leftists. (Axios)

Don’t be fooled by Biden and Xi talks—China and the US are enduring rivals rather than engaged partners. Beyond the optics of the first meeting in over a year between the leaders of the world’s two biggest economies, not an awful lot had changed. (The Conversation)

Development aid cuts will hit fragile countries hard, could fuel violent conflict. Fragile and least developed countries have had their development assistance cut drastically, according to the Organization for Economic Co-operation and Development. (The Conversation)

UAW chief, having won concessions from strikes, aims to expand membership to nonunion automakers. Entering contract talks with Detroit’s three automakers, Shawn Fain set lofty expectations for what he could gain for his union members—and delivered on many of them. (AP)

UN secretary general heads to Antarctica on pre-COP28 climate visit. Guterres, who favors aggressive emissions cuts to planet-warming greenhouse gases, is likely to use the trip as a springboard to his discussions with world leaders at the COP28 Climate Summit in Dubai. (Axios)

Corporate America's revenues are roaring back. Better-than-expected numbers from third-quarter earnings season—which unofficially ended with Walmart's results last Thursday—helped lift stocks sharply this month. (Axios)

After WeWork's bankruptcy, what is the future of coworking? Practically synonymous with coworking, WeWork has an uncertain future after it was forced to file for bankruptcy protection in the U.S. Can coworking survive without it? (BBC)

British Steel set to cut up to 2,000 jobs in furnace closure plan. British Steel has confirmed it plans to close down its blast furnaces in Scunthorpe, putting up to 2,000 jobs at risk. (BBC)

What would it take for a cease-fire to happen in Gaza? Calls for a cease-fire and other limits on military operations and violence were made by governments, advocacy groups and political leaders around the world almost immediately after the Oct. 7, 2023, massacre of 1,200 Israeli civilians by Hamas. (The Conversation)

Nigerian workers’ wages diminish as inflation rises and gov’t revenue dips. Nigerian public sector workers say they earn slightly more than they did years ago, but can afford far fewer things than before. (Al Jazeera)

US defense chief visits Kyiv, announces $100m military aid package. The U.S. will send Ukraine anti-tank weapons, air-defense equipment and an additional HIMARS system. (Al Jazeera)

China’s Economy Had a Growth Spurt. Consumers Remain Worried. Whimpers of growth in China after months of malaise haven’t convinced many consumers, experts and investors that the economy is getting stronger. (Barron’s)

 

Turkey: Continued Policy Uncertainty

PRS Group

The People’s Alliance, a four-party coalition dominated by President Recep Tayyip Erdoğan’s AKP, retained 323 seats in the 600-member GNA at parliamentary elections held on May 14, and the president secured another five-year term by taking 52.2% of the vote in a run-off election held two weeks later. The key question coming out of the elections was whether the victory would be followed by the adoption of a more western-focused foreign policy and the embrace of a more orthodox approach to economic affairs or would be interpreted by the president as a mandate to persist with policies that have alienated Turkey’s NATO partners and sent investors scurrying for the exits.

More than five months later, the answer is not entirely clear. In July, Erdoğan dropped his objections to Sweden’s bid for NATO membership and he has also sought a rapprochement with Greece, with which Ankara cut ties last year to protest Athens’ interference in Turkey’s efforts to purchase F-16 fighters from the U.S. However, the gestures are purely transactional and the president could reverse course abruptly if his diplomatic objectives are thwarted.

The conflict between Israel and Hamas has complicated relations between Turkey and the US, which earlier this month castigated Turkey for impeding the ongoing battle against Islamic State extremists in northern Syria, to the detriment of regional stability and security. Against that backdrop, there is still cause to question whether or how quickly the GNA will ratify Sweden’s accession to NATO, particularly with some U.S. lawmakers now attempting to link the sale of the F-16s to Turkey’s adoption of a pro-Israel posture on the Gaza crisis.

Similarly, while Erdoğan has made known his desire to resume accession talks with the EU, his threat to pull Turkey out of the Council of Europe to protest an order from the European Court of Human Rights to review the convictions of thousands of alleged participants in a failed 2016 coup will hardly improve Turkey’s already slim chances of building support for its bid.

The dismissive response to the ECHR is in part designed to stoke nationalist sentiment with the aim of boosting the government’s public support ahead of next year’s municipal elections. That same consideration likely explains Erdoğan’s recent shift away from unorthodox economic policies that at the very least hindered the ability of policy makers to stabilize the currency and rein in inflation, resulting in economic hardships that contributed to the AKP’s poor showing in Ankara and Istanbul at the elections in May.

The hope is that the policy moves will help to bolster the lira and ease pressure on the supply of dollars. However, investors remain wary, and many intend to steer clear of the lira as long as real interest rates remain deeply in negative territory. Central Bank Gov. Hafize Gaye Erkan has pleaded patience as policy makers proceed gradually with the aim of minimizing the shocks generated by the corrective measures.

But it is uncertainty, not impatience, that is keeping investors on the sidelines. If Erkan is permitted to continue implementing the revised strategy, capital inflows will eventually resume. But given Erdoğan’s oft-stated preference for low interest rates, the maintenance of which was a central plank of his campaign platform, there is justifiable concern that he might pull the plug on normalization if the economic results do not bring an improvement in the AKP’s standing among the electorate. The risk of another U-turn will only increase with the approach of municipal elections in March 2024.

Year-on-year real economic expansion averaged close to 4% in the first half of 2023, but the shift in policy focus from promoting growth to taming inflation points to a deceleration in the second half. Assuming no departures from the current policy course, real GDP growth will slow to 3% in 2024, as investment in reconstruction in areas affected by a devastating earthquake earlier this year puts a floor under the slowdown. However, the risk of unpredictable policy shifts that trigger damaging instability cannot be ruled out.

The analysis above is taken from the October 2023 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB.

 

Week in Review Editorial Team:

Annacaroline Caruso, editor in chief

Jamilex Gotay, editorial associate

Kendall Payton, editorial associate