Macro and Politics

*Istanbul Chamber of Industry (ICI) Turkey March Manufacturing PMI will be announced @ 10:00 local time. The Istanbul Chamber of Industry (ICI) Turkey Manufacturing PMI rose to 49.3 in February from 48.1, marking its highest level since April 2024. According to the ICI release, the decline in new orders moderated to its softest pace in nearly two years, supported by emerging signs of improvement in customer demand. Meanwhile, contractions in output, employment, and inventories persisted but eased compared to January. We expect the recent tentative improvement observed in confidence indicators and PMI data to reverse as of March, amid heightened uncertainty stemming from US – Iran tensions. The adverse impact of the conflict on economic activity has introduced pronounced downside risks to our 2026 growth forecast of 4%. In light of the CBT’s effective 300bps tightening and our expectation that rate cuts will proceed more gradually and with a delay this year, we now see growth moderating to around 3.4% for 2026YE. Downside risks to growth could become more pronounced depending on the persistence of the supply shock and the scale of capital outflows from emerging markets.

* According to TURKSTAT foreign trade data, exports increased by 1.5% y/y to USD21bn in February, while imports rose by 5.5% y/y to USD30bn. As a result, the trade deficit widened to USD9bn from USD8.4bn in the previous month, largely driven by higher gold and energy imports. Looking at the core figures, exports excluding energy and gold rose by 4.4% y/y to USD19.9bn, while corresponding imports increased by 12.8% y/y to USD22.9bn. Accordingly, the core trade balance (excluding energy and gold) posted a deficit of USD3bn in February. In the Jan - Feb period, the cumulative trade deficit reached USD17.4bn, while the export-to-import coverage ratio declined to 70.4% from 73.2% in the same period last year. We expect the current account to record a deficit of USD7.37bn in February. We estimate that the balance of payments-defined trade deficit will rise to USD7.3bn, while the services surplus is likely to ease to slightly below USD2bn, reflecting weaker net travel revenues. Amid rising energy prices following the US–Iran tensions, we now assess that the year-end current account deficit could exceed our house forecast of USD36bn (2.1% of GDP), reaching around USD45bn (2.6% of GDP). Elevated volatility driven by geopolitical developments continues to cloud the outlook for the energy import bill.

* The seasonally adjusted unemployment rate rose from 8.2% to 8.5% in February, while the broader underutilization measure that we closely monitor – the rate of composite measure of labor underutilization consisting of time-related underemployment, potential labor force and unemployment – rose a tad from 29.8% to 29.9%. A breakdown of the components shows that the combined rate of time-related underemployment and unemployment remained unchanged at 19.2%, while the combined rate of unemployment and the potential labor force increased to 20.6% from 20.2%. Levels of around 30% in the broad underutilization measure point to a materially weaker labor market than suggested by the headline unemployment rate. Given the expected drag on economic activity from US – Iran tensions, we anticipate that the upward trend in broader labor market slack will persist in the period ahead.