Macro and Politics

*The Treasury will hold 2y fixed coupon and 4y TLREF-indexed bond auctions today. According to the three-month (Mar – May 25) domestic borrowing strategy, the Treasury has a total domestic redemption of TL124.7bn in March, while in return plans to borrow TL201.2bn throughout the month, via five auctions. After today’s double auctions, the Treasury will hold a 7y FRN bond auction on March 17^th, and 3y CPI-indexed and 5y fixed coupon bond auctions on March 18^th, finalizing its domestic borrowing program for March.

*The sequential IP (the seasonally and calendar adjusted monthly figure) contracted by 1.2% m/m in January 2025, while the calendar adjusted IP rose by 1.2% y/y. The weakening in January was signaled by leading indicators, driven by both weak data for the month and the sharp decline in the ICI Manufacturing PMI, which fell to 48—the largest monthly drop since September. Additionally, corrections in highly volatile components have contributed to this downturn. Based on leading indicators, the monthly contraction observed in January is likely to persist into February, albeit at a more moderate pace. Our baseline scenario for this year suggests that, following a slowdown in annual growth in the first quarter of 2025, activity will begin to recover from the second quarter onwards, with GDP growth for the year projected at 2.6%. However, preliminary data received so far indicates that the weakening in growth we anticipated in the first quarter may not occur to the extent we had predicted. We have currently obtained nearly half of the data for the first quarter. Therefore, we will continue to compile incoming data and refine our outlook for the first quarter.

*Istanbul Chamber of Industry (ICI) Export Climate Index edged down marginally to 51.1 from 51.2, remaining above the 50-threshold for the 14^th consecutive month. The accompanying note underlined that, as has been the case for some time, the Middle East posted the strongest rates of expansion in business activity worldwide, while trends elsewhere were more mixed. Of all the economies covered by the report, the largest expansion in business activity in February was seen in Saudi Arabia. On the other hand, the most marked contraction was observed in France, which is the destination for 4% of Turkish manufacturing exports. The fall in output in France was notable, marking the steepest decline in just over a year. Elsewhere in Europe, trends were mixed: Germany posted a fractional decrease in business activity, while output remained unchanged in the UK. As a result, although the overall demand climate for Turkish manufacturing exporters remained positive in February, the Middle East continued to be a key source of growth, while demand remained subdued in several European markets.