Macro and politics

* The Treasury will hold a 2y fixed coupon bond auction today. According to three-month (Jan – Mar 25) domestic borrowing strategy, the Treasury has a total domestic redemption of TL225.4bn in January, while in return plans to borrow TL293.8bn throughout the month, via six auctions and two direct sales. After today’s single auctions, the Treasury will hold 2y TLREF indexed and 5y fixed coupon bond auctions tomorrow.

*We expect the November Current Account Balance to register a deficit of USD3bn, in line with the median estimate according to the survey conducted by Foreks. The CBRT will release November Balance of Payment figures today @ 10:00 local time. We expect the current balance to revert to a deficit in the last two months of the year, with the annual deficit increasing slightly. We project an annual current account deficit of USD9bn (0.7% of GDP) for 2024, excluding any potential revisions and our year-end current account deficit expectation for 2025 is USD15bn (1% of GDP). Our forecasts are based on the assumption of no disruptions in energy prices and the continuation of low levels of gold imports.

*The sequential (the seasonal and calendar adjusted monthly figure) industrial production (IP) increased by 2.9% m/m as of November 2024, while the calendar adjusted IP rose by 1.5% y/y. IP had experienced a decline both on a monthly and annual basis in October. Following the positive signals from leading indicators for November, we had suggested that the contraction in IP in November might be more limited compared to October. Yet, the data appears to show a stronger-than-expected recovery. In November, the seasonally and calendar-adjusted intermediate goods index rose from 97 to 98, while the 3-month moving average increased from 97 to 97.8. The consumer durables index dropped from 109.8 to 107.7, with the 3-month average rising from 108.8 to 109.1. The capital goods index, on the other hand, increased from 120.3 to 130.4, with its 3-month average climbing from 121.7 to 125.1. Leading indicators for the final quarter signal a moderate recovery in economic activity, while PMI data also supports a more optimistic outlook for the quarter. However, it is important to emphasize that the manufacturing sector continues to exhibit a contractionary trend in overall activity. The leading data suggest that growth in the fourth quarter of 2024 could be positive on a quarterly basis, while annual growth is expected to remain slightly below 2%. We project GDP growth to conclude 2024 at around 2.9%, with a further slowdown to 2.6% by the end of 2025.

* The adjusted unemployment rate edged down to 8.6% from 8.7% in November, yet the broad-based unemployment calculations deteriorated as the rate of composite measure of labor underutilization – including time related underemployment, potential labor force and unemployment—increased to 28.2% from 27.6%.The combined rate of time-related underemployment and unemployment remained unchanged at 18.5%, while the combined rate of unemployment and potential labor force rose to 19.4% from 19%.  We expect growth dynamics to gain some momentum starting in the second quarter of 2025, although we forecast GDP growth for 2025 to be lower than in 2024, at 2.6%. As a result, we anticipate that the unemployment rate could rise above 10% in 2025.