Macro and Politics

* The sequential (the seasonally and calendar adjusted monthly figure) industrial production (IP) contracted by 2.8% m/m in January, following two consecutive months of expansion, while the calendar-adjusted annual change pointed to a 1.8% decline, signaling that the weakness in the annual trend remains in place. A closer look at the subcomponents suggests that the monthly decline was largely driven by the manufacturing sector, where output fell by 3.4% m/m and 2.5% y/y. By main industrial groupings, the weakness was particularly evident in intermediate goods (-4.2% m/m), capital goods (-3.9% m/m) and durable consumer goods (-6.7% m/m), pointing to a loss of momentum in segments closely linked to investment activity and domestic demand. Meanwhile, manufacturing of other transport equipment, which includes defense industry products, dropped by 25.8% m/m, weighing notably on overall production. On the positive side, mining (+2.1% m/m) and electricity, gas and steam production (+1.8% m/m) posted gains, while the high-technology segment recorded 5.8% m/m and 22% y/y growth, although readings in this category tend to be volatile and should be interpreted cautiously. Meanwhile, the sharp increase in oil prices amid rising US – Iran tensions has pushed the domestic macro risk profile higher. While the newly introduced 75% échelle mobile mechanism may temporarily limit the pass-through to fuel prices, a more persistent energy shock could create fiscal costs through the excise tax channel and generate second-round pressures via producer prices, increasing risks to inflation and downside risks to growth. Against this backdrop, we maintain our house forecast for 2026 GDP growth at 4% for now, although we will reassess our projections as we further assess the persistence of oil prices and their implications for domestic demand and financial conditions.

* The Treasury tapped the domestic markets to the tune of TL45.6bn, including non-competitive sales (TL30.3bn), via yesterday’s 10m G-bond and 5y CPI-linked bond auctions. Demand for the 10mh G-bpnd remained robust, with a bid-to-cover ratio of 3.18x, while the auction cleared at an average compounded yield of 38.25%. By contrast, demand for the CPI-linked bond proved more subdued, with a bid-to-cover ratio of 1.54x, and the real compounded yield settling at 5.23%. Following last week’s direct sale of a 1y EUR-denominated bond, which generated aroudn TL47bn in borrowing, yesterday’s auctions bring the Treasury’s total domestic borrowing for the month to TL92.6bn. According to the domestic borrowing strategy for the March – May 2026 period, the Treasury plans to borrow a total of TL315.5bn from the domestic market in March against redemptions of TL394.3bn, implying a rollover ratio of approximately 80%. Having already borrowed below the redemption amount in February, the Treasury appears set to maintain a similar strategy in March and April, targeting domestic borrowing below redemption amounts. Following last week’s direct sale of a 1y euro-denominated bond and yesterday’s double auctions, the remaining borrowing space for the rest of the month stands at roughly TL223bn under the current domestic borrowing projections. After yesterday’s double auctions, the Treasury will continue its March funding program with two fixed-coupon bond auctions with maturities of 5y and 8y on 16 March, followed on 17 March by auctions of a 2y fixed coupon bond and a 4yr TLREF-indexed bond, alongside direct sales of a 2y gold-denominated bond and a gold-denominated lease certificate, thereby completing its March domestic borrowing program.