Macro and Politics

* TURKSTAT will release the February inflation figures today @ 10:00 local time. We expect CPI to increase by 2.9% m/m in February, in line with the market consensus. A print in line with our house estimates would lift annual inflation from 30.7% to 31.5%, implying a pause in the disinflation process during the month. The recent sharp increase in oil prices following the escalation in US–Iran tensions constitutes a material risk to the near-term inflation outlook. In line with higher oil prices, we estimate that potential fuel price adjustments could add roughly 0.3pp to our March inflation forecast under the current pricing environment. Yet, further upside in energy prices would likely amplify this impact. Accordingly, the level at which oil prices stabilize will be critical for the inflation trajectory. While the decline in vegetable prices we have observed since the beginning of March provides a partial offset, rising geopolitical risks and the upward trend in energy prices have materially increased the upside risks to our 23% year-end inflation forecast.

* The Turkish economy expanded by 3.4% y/y in the final quarter of 2025, while seasonally and calendar-adjusted quarterly growth remained contained at 0.4% q/q. As a result, full-year growth came in at 3.6%, slightly below our 3.8% projection. A breakdown of the data suggests a differentiated sectoral performance. On the production side, construction (+10.8%) and information & communication (+8.0%) stood out positively, whereas relatively subdued industrial growth (+2.9%) and a sharp contraction in agriculture (-8.8%) weighed on the overall composition of growth. On the expenditure side, household consumption rose by 4.1%, confirming that domestic demand continued to act as the main driver of activity. In contrast, a 0.9% decline in government final consumption points to a more limited fiscal contribution to growth. Gross fixed capital formation increased by 5.4%, signaling a gradual recovery in investment dynamics. Meanwhile, a 0.3% contraction in exports alongside a 4.9% increase in imports implies a negative contribution from net external demand. Overall, the data indicate that growth in 2025 remained predominantly domestic demand-driven. We maintain our 4% growth forecast for 2026.