Macro and Politics

*Istanbul Chamber of Industry (ICI) Turkey June Manufacturing PMI will be announced @ 10:00 local time. ICI Turkey Manufacturing PMI declined from 47.3 to 47.2 in May, marking the lowest reading so far this year and the weakest since October 2024. Remaining below the 50-threshold since March 2024, the index continues to signal a sustained loss of momentum in manufacturing activity for over a year. The accompanying note underlined that business conditions moderated again in the Turkish manufacturing sector during May as muted demand conditions contributed to firms scaling back their production, employment and purchasing activity. The note highlighted that input costs continued to rise sharply, often as a result of currency weakness and output prices were also up, but a oftening demand environment limited the pace of charge inflation. The note stated that employment and purchasing activity were also scaled back to larger extents than in April, while manufacturers reduced their inventories of both purchases and finished goods.

* The adjusted unemployment rate eased a tad from 8.6% to 8.4% in May. As per the broad-based unemployment calculations: The rate of composite measure of labor underutilization – including time related underemployment, potential labor force and unemployment – decreased slightly from 32.1% to 31% and remained elevated. Moreover, the combined rate of time-related underemployment and unemployment rose stood at 20.7%, while the combined rate of unemployment and potential labor force materialized at 20.2%. Despite the decline in May, we interpret the fact that the rate of composite measure of labor underutilization remains above 30% and hovers near record-high levels as a sign of continued cooling in the labor market. Rather than the headline unemployment rate, we focus more closely on the broad-based unemployment calculations, which we expect to remain elevated in the period ahead.

* According to foreign trade figures released by TURKSTAT, exports rose by 2.6% y/y in May to USD24.8bn, while imports increased by 2.7% to USD31.5bn. As a result, the foreign trade deficit narrowed significantly from USD12.1bn to USD6.6bn as of May, whereas the 12-month cumulative deficit remained broadly flat at USD86.8bn. Based on the May foreign trade figures, we estimate that the current account balance will post a relatively low deficit of around USD616mn for the month. We maintain our year-end current account deficit forecast at USD22bn, corresponding to 1.5% of GDP.