Macro and Politics

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of March 20 – 27 @ 14:30 local time. Based on our calculations derived from the CBT’s analytical balance sheet, we estimate that the net FX reserves slumped by USD22.1bn to USD35.2bn in the week of March 20 – 27, while gross FX reserves tumbled by USD22bn to USD155.6bn. We expect today’s official reserve data to point to a decline broadly in line with our estimates. To recall the previous week’s data: Foreign investors recorded net sales of USD137.6mn in equities and USD130.1mn in the bond market (excluding repo transactions) in the week of March 13 – 19. Moreover, during the same period, the residents’ FX deposits increased by USD668mn, while their total FX deposits (including gold, price adjusted) increased by USD840mn. Lastly, the CBT reserves continued to decline in the week of March 13–19. Accordingly, gross FX reserves fell by USD12.2bn to USD177.6bn, while net FX reserves declined by USD11.6bn to USD57.3bn. The gold component of gross reserves dropped sharply from USD134.1bn to USD116.2bn. Over the same period, the swap stock edged down by USD258mn to USD14.4bn, while net reserves excluding swaps declined by USD11.3bn to USD42.9bn.

* The Istanbul Chamber of Industry (ICI) Turkey Manufacturing PMI declined to 47.9 in March from 49.3, marking its lowest level since October. As a result, the uninterrupted slowdown in the manufacturing sector—reflected by the PMI remaining below the 50 threshold—has now extended to two years. Recall that the PMI had risen from 48.1 to 49.3 in February, reaching its highest level in 22 months. The index averaged 48.4 in Q1 2026, up from 47.8 in the previous quarter, suggesting that the pace of contraction eased in Q1 – largely driven by the strong February print – but re-intensified in March following the onset of the US–Iran conflict. The accompanying note indicated that the slowdown in new orders deepened again in March as the war in the Middle East intensified inflationary pressures and weakened demand. Price pressures were largely attributed to higher freight, fuel, and oil costs, while subdued demand and rising costs led to a further contraction in output, with production declining at the fastest pace since last November. Supply chain disruptions—driven by material shortages and transportation bottlenecks—also led to the sharpest increase in suppliers’ delivery times since August 2024. Meanwhile, the Bloomberg HT Consumer Confidence Index, another key leading indicator, fell sharply by 10.3% m/m to 68.1 in March. Given the adverse impact of the US–Iran conflict on economic activity, downside risks to our 2026 growth forecast of 4% have become more pronounced. Following the disruptive impact of the US–Iran conflict on economic activity, alongside rising energy prices, and in light of the CBT’s recent effective 300bps tightening as well as our expectation of more delayed and gradual rate cuts, we now see growth moderating to around 3.4% by end-2026. Downside risks could intensify further depending on the persistence of the supply shock and the scale of capital outflows from emerging markets.