Macro and Politics

* The Treasury will hold a 5-month G-bond auction and a direct sale of a 2-year lease certificate today. The Treasury tapped the domestic markets to the tune of TL53.3bn (including non-competitive sales) via yesterday’s 2y fixed coupon bond auction. The bid – to – cover ratio was 2.07x, while the average cost of borrowing was 37.73%. According to three-month (Fed – Apr 25) domestic borrowing strategy, the Treasury has a total domestic redemption of TL117.8bn in February, while in return plans to borrow TL180.1bn throughout the month, via five auctions and one direct sale. Following this week’s auctions and direct sale, the Treasury will hold 4y TLREF-indexed bond auction on February 17^th and 3y CPI-indexed & 5y fixed coupon bond auctions on February 18^th and finalize its domestic borrowing program for February.

* The sequential IP (the seasonal and calendar adjusted monthly figure) surged by 5% m/m in December 2024, while the calendar adjusted IP soared by 7% y/y. The leading indicators for December heralded that the recovery observed in November might extend further into December. Yet, a closer examination of the data reveals that the increase in December IP figures was predominantly driven by highly volatile sectors. It is important to underscore that sharp fluctuations in these sectors do not necessarily reflect the underlying trend, thus it is not possible to describe a widespread recovery in industrial production at this stage. It is important to emphasize that the manufacturing sector continues to exhibit a contractionary trend in overall industrial activity. By the time we reach 2025, the early indicators for January point to signs of weakness in economic activity. We anticipate annual growth to remain subdued through the second quarter of 2025, with a gradual acceleration in the latter half of the year. 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 8.5% from 8.6% in December, yet the broad-based unemployment calculations remained higher as the rate of composite measure of labor underutilization – including time related underemployment, potential labor force and unemployment— posted no change at 28.2%, which stands for the highest level since January 2021. The combined rate of time-related underemployment and unemployment slid barely to 18.4% from 18.5%, while the combined rate of unemployment and potential labor force rose slightly to 19.5% from 19.4%.  We expect growth dynamics to gain some momentum starting in the second half of 2025 after a stagnant period, 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 towards 10% in 2025 and more importantly, we assess that the high levels of composite measure of labor underutilization to sustain its rising tendency.