Macro and Politics

*The CBT will release the March Real Sector Confidence Index and Capacity Utilization Rate @ 10:00 local time today. The unadjusted Real Sector Confidence Index (RSCI) increased by 2.5 points m/m to 104.1 in February, while the seasonally adjusted index rose by 1.1 points to the same level. Remaining comfortably above the 100 threshold, the index continues to signal an improvement in real sector confidence regarding economic activity. An assessment of the diffusion indices underlying the survey indicates that the rise in February was driven by improvements in total orders over the past three months, expected production over the next three months, current total orders, expected export orders, fixed capital investment expenditures, and current finished goods inventories. In contrast, expectations for total employment over the next three months and assessments of the general business outlook exerted a downward impact on the headline index. Capacity Utilization Rate (CUR) declined to 73.5% in February from 74.1% in the previous month, while the seasonally adjusted CUR eased to 74.0% from 74.4%. In our view, the increase in the RSCI points to a continued recovery in short-term production and order dynamics, even as the moderation in capacity utilization suggests that the current pace of output has yet to gain clear momentum. We expect the March data to provide a clearer read on the spillovers of escalating US–Iran tensions across the real sector. As the conflict heightens risks to economic activity, we assess that downside risks to our 2026 growth forecast of 4% have become more pronounced.

* The consumer confidence index declined to 85 in March from 85.7, bringing the first-quarter 2026 average to 84.8, up modestly from an average of 84 in the final quarter of 2025. A breakdown of the sub-components suggests a mixed picture: the index tracking households’ current financial conditions improved to 72.8 from 71.3, while expectations for households’ financial situation over the next 12 months deteriorated to 85.6 from 86.8. Similarly, expectations for the general economic outlook over the next 12 months weakened to 79.1 from 81.4. Meanwhile, the index measuring the propensity to spend on durable goods – a key proxy for the domestic demand outlook – edged down to 102.7 from 103.2. Overall, the tentative recovery observed in February appears to have reversed in March amid heightened geopolitical risks and elevated uncertainty. In this context, rising geopolitical tensions linked to the US – Iran conflict are pushing energy prices higher, thereby adding to inflationary pressures, while the concurrent deterioration in consumer confidence is reinforcing plapable downside risks to domestic demand and the broader growth outlook.

* Foreign investors recorded net sales of USD321.8mn in equities and USD2.9bn in the bond market (excluding repo transactions) in the week of March 6 – 13. Accordingly, foreign outflows from the bond market extended into a fourth consecutive week, bringing the cumulative outflow over this period (ex-repo) to USD5.8bn. Besides, the foreign share in the total government bond stock declined further to 6.9% from 8.1%. Meanwhile, since the onset of the US–Iran conflict in the week of February 27–March 6, cumulative foreign outflows over the subsequent two-week period reached USD1.1bn in equities and USD4.6bn in bonds (excluding repo transactions). Moreover, within the mentioned week, the residents’ FX deposits declined by USD816mn (excluding gold, EUR/USD parity effect adjusted), while their total FX deposits, (including gold, price adjusted), declined by USD1.2bn. As a reminder, data released on Thursday had already pointed to a continued decline in CBT reserves in the week of March 6–13. Over this period, gross FX reserves fell by USD7.8bn to USD189.8bn, net FX reserves declined by USD9.8bn to USD68.9bn, and the net reserves excluding swaps dropped by USD10.7bn to USD54.2bn. Our calculations based on the CBT analytical balance sheet suggest that the decline in reserves persisted into the following week. In the shortened week of March 13–19 due to the holiday period, we estimate that gross FX reserves slid by a further USD12.3bn to USD177.5bn, while net FX reserves slumped by USD11.4bn to USD57.4bn. We expect the official data to be released on Thursday to confirm a reserve decline broadly in line with our calculations.