Macro and Politics

* The state-run natural gas distributor Botas hiked the natural gas prices by 24.6% for residential use. The direct impact of the price increase on the CPI will be around 0.45pp. Considering the indirect effects, we anticipate a higher overall impact on headline. However, with the prevailing positive base effect, we expect the annual CPI to sustain its decline in July, potentially falling below 34%.

* Istanbul Chamber of Industry (ICI) Turkey Manufacturing PMI declined further from 47.2 to 46.7 in June, 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 manufacturers in Türkiye continued to face challenging demand conditions in June, resulting in sharper slowdowns in new orders, output, employment and purchasing activity. Meanwhile, the rate of input cost inflation ticked higher, but firms raised their output prices at a slower pace given muted customer demand. The note also highlighted that the rate of input cost inflation quickened slightly in June, with input prices rising sharply amid currency weakness and the inflationary impact of the situation in Iran. June PMI data indicate that Turkish manufacturers remain under pressure amid persistently challenging demand conditions. Following a challenging first half of the year, we expect an improvement in economic activity in the second half of 2025, albeit a modest one. While tighter financial conditions since March 19 have heightened downside risks to economic activity, high-frequency indicators do not yet point to a sharp cooling in domestic demand dynamics. As a result, we maintain our growth forecast at 3.1%, while closely monitoring the emerging downside risks.