Macro and Politics

*The CBT will release June Balance of Payment figures today @ 10:00 local time, and we expect the current account balance to register a deficit of USD1.5bn. Based on foreign trade data, we expect the trade deficit to widen from USD4.8bn in June to USD6.9bn. Additionally, we anticipate that the net tourism revenue will rise toward USD4.8bn, pushing the services surplus above USD6bn. Consequently, we forecast the current account deficit to expand from USD 684 million in May to USD 1.5 billion in June. However, we expect the current account to revert to a surplus starting in July. We maintain our year-end current account deficit forecast at USD22bn, corresponding to 1.5% of GDP.

* The Treasury will hold 10m G-bond and the direct sale of 2y lease certificate today. The Treasury tapped the domestic markets to the tune of TL80.5bn via yesterday’s 2y fixed coupon bond auction. The bid – to – cover ratio was 1.7x, while the average cost of borrowing was 40.39%. After this week’s auctions and direct sale, the Treasury will hold 7y FRN auction on August 18, 4y TLREF & 5Y fixed coupon bond auctions on August 19 and the direct sales of 1y USD-denominated bond & 1y USD-denominated lease certificate on August 21 and finalize its domestic borrowing program for August. According to its three-month (August – October 2025) domestic borrowing program, the Treasury faces a hefty domestic redemption of TL339bn in August, while in return it plans to borrow TL440.8bn in total throughout the month, indicating a roll-over ratio of 130%.

*The sequential (the seasonally and calendar adjusted monthly figure) industrial production (IP) increased by 0.7% m/m in June, while the calendar adjusted IP surged by 8.3% y/y. The robust annual rise primarily reflects a low base effect; therefore, we do not expect the surge in annual data to be permanent. Examining the monthly breakdown, the highest growth was recorded in the high-technology sector, which expanded by 38.1%, followed by a 28% increase in the manufacturing of other transport equipment. The growth in this latter segment was largely driven by strong external demand for defense and aerospace exports. According to Turkish Exporters Assembly (TİM) data, defense and aerospace exports maintained strong momentum in July, and we expect this segment to continue contributing positively to industrial production during that month. However, it is noteworthy that the June monthly increase was not broad-based. Excluding the high-technology and other transport equipment sectors, a weakening trend in industrial production becomes apparent. Accordingly, consistent with signals from leading indicators, we anticipate the underlying trend in real sector activity to remain subdued.

*Based on our calculations using the CBT’s analytical balance sheet, we estimate that during the week of August 1 – 8, net international reserves surged by USD4.24bn to USD67.4bn, while gross FX reserves climbed by USD5.36bn to USD174.5bn. Accordingly, our calculations point to gross foreign exchange reserves reaching an all-time high. We anticipate that the official reserve data, to be released on Thursday, will likely reflect a similar rise in line with our estimates.