Macro and Politics

*TURKSTAT will release 1Q25 GDP figures today @ 10:00 local time. We estimate annual GDP growth at 2.3% for the first quarter. According to the survey conducted by ForInvest, the market median forecast stands slightly below our projection, at 2.2% y/y for 1Q25. While leading indicators have yet to point to a palpable loss of momentum, we anticipate a more pronounced deceleration in the real sector and a broader slowdown in economic activity starting in the second quarter, driven by domestic developments since March 19 and tightening financial conditions. Accordingly, although our year-end growth forecast currently stands at 3.1%, we are considering a downward revision in the period ahead. The CBRT’s output gap projection, as outlined in the second Inflation Report of the year, suggests that the gap will remain in negative territory through 2028, with a deeper contraction anticipated in 2025. Hence, we believe the likelihood of full-year GDP growth coming in below 3% in 2025 has increased significantly.

* April Employment figures will be released @ 10:00 local time. The adjusted unemployment rate dropped from 8.2% to 7.9% in March. As per the broad-based unemployment calculations: The rate of composite measure of labor underutilization – including time related underemployment, potential labor force and unemployment – climbed from 28.5% to 28.8%, which stands for the highest level since June 2024. Moreover, the combined rate of time-related underemployment and unemployment decreased from 18.4% to 17.9%, while the combined rate of unemployment and potential labor force increased from 19.6% to 20.1%.  We assess that the rising idiosyncratic issues as of March 19, along with the subsequent tightening measures undertaken by the CBT, may begin to weigh negatively on economic activity starting from the second quarter. Accordingly, we expect upward pressure to persist particularly in the rate of composite measure of labor underutilization, which we monitor more closely.

* During the week of May 16–23, foreign investors were net buyers in both the equity and bond markets, albeit modestly, recording net purchases of USD13.2mn in equities and USD148.4mn in government bonds (excluding repo transactions). Moreover, in the mentioned week, the residents’ FX deposits dropped by USD1.2bn (excluding gold accounts and adjusted for the EUR/USD parity effect), while their total FX deposits (including gold, price adjusted) slid by USD1.3bn during the week of May 16 – 23. Besides, the CBT’s gross FX reserves climbed by USD7.5bn to USD153.3bn and net international reserves soared by USD8bn USD48bn, while net reserves excluding swaps climbed by USD5bn to USD28.3bn.

* According to foreign trade figures released by TURKSTAT, exports rose by 7.8% y/y in April to USD20.8bn, while imports increased by 12.7% to USD32.9bn. As a result, the foreign trade deficit widened significantly from USD7.2bn to USD12.1bn in April, marking its highest level since July 2023. On a 12-month rolling term, the deficit climbed from USD84.5bn to USD86.7bn. Looking at the core data, exports excluding energy and gold rose by 11.1% to USD19.3bn, while imports in the same category increased by 13.5% to USD25.4bn in April. The core trade deficit stood at USD6.2bn during the month. In light of this, we estimate that the current account recorded a notable deficit of around USD7.5bn in April. We maintain our year-end current account deficit forecast at USD22bn (1.5% of GDP).