Macro and Politics

*The CBT will release May Balance of Payment figures today @ 10:00 local time, and we expect the current account balance to register a deficit of USD616mn. Based on foreign trade data, we expect the trade deficit to narrow significantly in May, declining from around USD10bn to approximately USD4bn. In addition, we anticipate that the net tourism income will rise toward USD4.5bn, pushing the services surplus above USD5bn. Accordingly, we project that the current account deficit will decline sharply in May, coming in below USD 1 billion. We maintain our year-end current account deficit forecast at USD22bn, corresponding to 1.5% of GDP.

* The sequential (the seasonally and calendar adjusted monthly figure) industrial production (IP) increased by 3.1% m/m in May, while the calendar adjusted IP rose by 4.9% y/y. We assess that the strong monthly gain in May was partially driven by a favorable monthly base effect, as IP had contracted by 3.2% in April. A breakdown of the data reveals that capital goods provided a notable contribution to the improvement. In May, capital goods production rose by 8.6% m/m, while durable consumer goods increased by 4.3%. Intermediate goods, on the other hand, recorded a relatively modest gain of 1.5%. Despite the strong headline figure, we do not interpret the May’s IP output as the beginning of a sustained recovery in manufacturing activity. Leading indicators continue to signal weakness in the industrial sector as the Istanbul Chamber of Industry (ISO) Manufacturing PMI declined from 47.2 in May to 46.7 in June, marking the lowest level since October 2024. Hence, we do not anticipate a pronounced and lasting recovery in industrial production in the second half of the year. Although recently retightening financial conditions have amplified downside risks to the activity, high-frequency indicators have yet to signal a rapid cooling in domestic demand dynamics. Meanwhile, public spending continues to provide support to the growth outlook. Accordingly, we maintain our 2025 growth forecast at 3.1%, while closely monitoring the mounting downside risks

* In the week of June 27 – July 4, foreigners registered a net purchase of USD235mn in equities and USD2.4bn in government bonds (excluding repo transactions). This marks the strongest weekly inflow into the bond market since May 2024. Thus, the foreigners’ share in total bond stock climbed from 5.7% to 6.3% within the mentioned week. Moreover, during the week of June 27 – July 4, residents’ FX deposits dropped drastically by USD3.8bn (excluding gold accounts and adjusted for the EUR/USD parity effect), while their total FX deposits (including gold, price adjusted) plunged by USD4.1bn during the week of June 27 – July 4. Besides, the CBT’s gross FX reserve climbed by USD10bn to USD164.6bn, while net international reserves surged by USD11.1bn to USD57.4bn. Net reserves excluding swaps also soared by USD9.8bn to USD38.1bn.