Macro and Politics

* TURKSTAT will release March Industrial Production (IP) figures today @ 10:00 local time. The sequential IP (the seasonally and calendar adjusted monthly figure) contracted by 1.6% m/m in January 2025, while the calendar adjusted IP decreased by 1.9% y/y. The Istanbul Chamber of Industry (ICI) manufacturing PMI, which averaged 47.73 in 4Q24, showed little change in 1Q25, averaging 47.87. Accordingly, we expect IP in the first quarter of this year to mirror the performance seen in 4Q24. The adverse impacts of rising domestic angst and increased market volatility as of March 19 have begun to surface in April leading indicators. There are signs that perceptions regarding the overall economic outlook have once again shifted toward pessimism, accompanied by a deterioration in early indicators throughout April. Our year-end GDP growth forecast is 3.1%, yet with downside risks attached.

* During the week of April 25 – May 2, foreign investors recorded a net purchase of USD173.6mn in the equity market, while they were net sellers in the bond market (excluding repo transactions), registering an outflow of USD1.2mn, which led to a slight decline in their share of the total bond stock from 4.7% to 4.5%. Besides, during the same period, the residents’ FX deposits slid further by USD952mn (excluding gold accounts and adjusted for the EUR/USD parity effect), while their total FX deposits (including gold, price adjusted) retreated by USD825mn. Moreover, the CBT’s gross FX reserves dropped by an additional USD2.5bn to USD138.7bn, while the net international reserves decreased by USD2.2bn to USD32.8bn.

* The Treasury recorded a cash deficit of TL183.5bn in April, bringing the cumulative cash deficit in Jan-Apr period to a hefty amount of TL1.1tn. Moreover, the primary balance posted a surplus of TL73.6bn in March, while the cumulative primary deficit for the first four months amounted to TL411bn. The persistent divergence between the accrual-based and cash-based budget frameworks remains notable. The substantial cash deficit in Jan-Apr period underscores that elevated public expenditure continues to pose risks to the disinflation outlook. Given that more than a third of the annual deficit projection has materialized within the first three months of the year, we believe that achieving fiscal consolidation in the remainder of the year will be critical to restoring a healthier balance between inflation and growth dynamics.