Macro and Politics

* May Employment figures will be released @ 10:00 local time. The adjusted unemployment rate climbed from 8% to 8.6% in April. As per the broad-based unemployment calculations: The rate of composite measure of labor underutilization – including time related underemployment, potential labor force and unemployment – rose sharply from 28.8% to 32.2%, marking an all-time high and signaling a pronounced weakening in labor market conditions. Moreover, the combined rate of time-related underemployment and unemployment rose from 17.9% to 22.5%, while the combined rate of unemployment and potential labor force edged down from 20.1% to 20%. Heightened domestic financial turbulence starting from March 19 and the subsequent tightening measures introduced by the CBT are expected to weigh more explicitly on economic activity as of the second quarter. Accordingly, rather than focusing solely on the headline unemployment rate, we anticipate that the rate of composite measure of labor underutilization, which we monitor more closely, will remain elevated, reflecting persistent weakening in the labor market.

* TURKSTAT will release May foreign trade figures 10:00 local time. Preliminary data released by the Ministry of Trade point to a notable narrowing in the foreign trade deficit in May. According to the preliminary data, exports rose by 2.7% y/y to USD24.8bn, while imports increased by 2.19%, reaching USD31.3bn. As a result, the foreign trade deficit narrowed significantly from USD12.1bn in April to USD6.5bn in May, while the 12-month cumulative deficit remained broadly unchanged at USD86.7bn. Based on preliminary foreign trade data, we expect the current account to register a modest deficit of around USD200mn in May. Our year-end forecast for the 2025 current account deficit stands at USD22bn (1.5% of GDP).

*The Economic Confidence Index recorded only a marginal increase in June, edging up from 96.65 to 96.71. It is worth recalling that the index had climbed to 100.8 in March, marking its highest level since June 2023 and surpassing the 100-threshold for the first time since March 2024. However, amid rising domestic political tensions and idiosyncratic concerns since March 19, the index has remained below the 100-threshold since April, indicating that perceptions regarding the overall economic outlook have continued to hover in pessimistic territory. According to the sub-components of the June data: the Consumer Confidence Index rose by 0.3% to 85.1, while the Real Sector Confidence Index declined by 0.2% to 98.4. The Services Confidence Index posted a 0.4% increase to 110.9, whereas the Retail Trade Confidence Index dropped by 2.5% to 108.5. Lastly, the Construction Confidence Index fell by 1.7% to 86.9 in June compared to the previous month.