Macro and Politics

* The Social Security Institution (SGK) amended the Healthcare Implementation Communiqué, as announced in the Official Gazette yesterday. Accordingly, a retroactive reduction was applied to a portion of the increases in medical examination copayments, which had been imposed in mid-January and had significantly contributed to the sharp rise in January CPI figures. Notably, the CBT Governor Karahan also highlighted this increase when revising the year-end inflation forecasts. We estimate that this adjustment will lead to a downward revision of approximately 0.9 – 1 ppts in February inflation forecasts and reinforce expectations of a 250bps rate cut in March. We anticipate that February’s monthly inflation, which we had previously projected to approach 4%, could now decline towards 3%. In this case, we foresee annual CPI inflation falling toward 40% in February and dropping below 39% in March. We maintain our expectation of a 250bps rate cut in March.

* The CBT will release the February Real Sector Confidence Index and Capacity Utilization Rate @ 10:00 local time today. The Real Sector Confidence Index (RSCI) ameliorated to 100.9 level from 99.1 as of January, surpassing the 100-threshold once again. As a reminder, the index had slid to 99.1 from 100.4 back in December, sliding below the 100-threshold for the first time since September and indicating a pessimistic outlook to the economic activity by the real sector agents covered by the Survey. The seasonally adjusted RSCI, moreover, dropped merely to 102.6 level from 102.7 as of January. In addition, the unadjusted Capacity Utilization Rate (CUR) decreased to 74.6% from 75.8%, while the adjusted CUR eased to 74.8% from 75.6% in January. Despite the observed increase in the unadjusted RSCI in January, leading indicators have shown signs of weakening on a monthly basis in the first month of the year. Following weak signals from the January data, the initial leading indicators for February suggest a potential recovery. As we await the release of the Real Sector Confidence Index today and the Economic Confidence Index later this week, we will continue to gather signals for the first quarter. After forecasting positive quarterly growth and an annual growth rate close to 3% in the final quarter of 2024, we expect economic activity to weaken once again in the first quarter of 2025. We foresee a significant decline in annual growth in 1Q25, followed by a modest recovery in 2Q25 and a more substantial rebound in the second half of the year. Overall, we forecast GDP growth for the year to be 2.6%.

*Survey results are beginning to take shape ahead of the release of Turkey’s 4Q24 GDP growth figures, slated for this Friday. According to a survey conducted by ForInvest (previously known as Foreks), the median forecast for Turkey’s annual GDP growth in 4Q24 stands at 2.8%. We also contributed to the survey, maintaining our own annual growth projection of 2.8% y/y for the final quarter of 2024. Although the median forecast aligns precisely with our in-house estimate, it is important to highlight the considerable spread in survey projections, which range widely from 2.2% to 4.7%.