Macro and Politics

* The sequential IP (the seasonally and calendar adjusted monthly figure) contracted by 3.1% m/m in April, while the calendar adjusted IP rose by 3.3% y/y. A breakdown by sub-sectors reveals that the mining and quarrying index fell by 2.5% and the manufacturing index declined by 3.4%, whereas the electricity, gas, steam, and air conditioning supply index posted a modest 0.2% increase on a monthly basis. Preliminary indicators for May suggest that the weakness in industrial production has persisted. The Istanbul Chamber of Industry (ICI) Turkey Manufacturing PMI declined slightly from 47.3 to 47.2 in May, marking the lowest level of the year and the weakest reading since October 2024. In light of the domestic financial volatility that emerged in March and the subsequent tightening in financial conditions, we anticipate a notable slowdown in economic activity—particularly in the real sector—during the second quarter. While our year-end GDP growth forecast remains at 3.1%, downside risks to this estimate are clearly mounting, and the probability that growth may undershoot the 3% mark has increased.

* During the week of May 30 – June 6, the CBT’s net international reserves increased by USD2.8bn to USD52.1bn, while gross reserves rose by USD2.7bn to USD156.1bn. Moreover, net reserves excluding swaps climbed by USD2.5bn, reaching USD32.5bn. Weekly portfolio flows and money & banking statistics, which are typically released alongside the reserve figures each Thursday, will be published today @ 14:30 local time due to this week’s religious holiday.