Macro and Politics

* Credit rating agency Fitch announced on Friday that it has affirmed Turkey’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-’, while revising the Outlook to “Stable” from “Positive”. The review was conducted outside the agency’s regular rating calendar, with Fitch noting that developments in the country warrant such a deviation from the calendar. material and sudden changes in a country’s credit profile may warrant an unscheduled rating action rather than waiting for the next planned review. Fitch indicated that the Outlook revision reflects a marked fall in international reserves since the start of the Iran war, with FX interventions by the CBT to defend the lira estimated in excess of USD50bn. In addition, a more protracted conflict would further pressure Turkey’s external finances and inflation, mainly due to its sizeable energy trade deficit. While Fitch underscored Turkey’s large and diversified economy, low government debt, record of sustaining access to external financing through periods of stress, and its resilient banking sector as key credit strengths, it also identified several structural vulnerabilities. These include persistently high inflation, repeated periods of political interference in monetary policy, recurrent balance-of-payments crises, low external liquidity relative to high financing requirements, and weak governance, all of which continue to weigh on the sovereign’s credit profile. In its updated macroeconomic projections, Fitch raised its end-2026 inflation forecast by 2 percentage points to 27%, while projecting real GDP growth of 3.6% for the year. The agency’s next scheduled sovereign rating review is set for July 17.

* The Treasury will hold a direct sale of a 2-year lease certificate today. After today’s sale, the Treasury will hold direct sales of a 1-year USD-denominated bond, a 2-year gold-denominated bond, and a gold-denominated lease certificate tomorrow and auctions of 2-year and 5-year fixed-coupon bonds on April 21. According to the domestic borrowing strategy for the 3-month period covering April – June 2026, the Treasury plans to conduct TL480.1bn in domestic borrowing against TL505.4bn in redemptions in April, implying a rollover ratio of 95%. Having already raised TL133.6 since the beginning of the month, the Treasury is expected to borrow approximately TL345bn through this week’s direct sales and the bond auctions scheduled for next week.

* The sequential (seasonally and calendar-adjusted monthly figure) industrial production (IP) rose by 2.6% m/m in February, while calendar-adjusted annual growth came in at 2.2%. Although the rebound following January’s weakness was broadly in line with our house forecast, the breakdown across subcomponents, together with high-frequency indicators, suggests that the improvement reflects a limited and composition-driven adjustment rather than the start of a broad-based and sustained acceleration in momentum. Looking at the details, intermediate goods (up 2.3% m/m and 2.6% y/y) and capital goods (up 6.4% m/m and 12.8% y/y) were the main drivers of the monthly increase in industrial output. However, this strength appears concentrated in select segments rather than pointing to a homogeneous recovery across the production chain. In contrast, durable consumer goods posted only a modest 0.7% m/m increase, while contracting by 13.8% y/y, indicating that domestic demand conditions remain subdued. Notably, “manufacture of other transport equipment” - which we closely monitor and which includes defense-related production - recorded strong gains of 45.7% m/m and 58.4% y/y, emerging as a key contributor to the headline print. Similarly, the high-technology segment delivered a robust 30.6% y/y increase; however, given the pronounced volatility and base effects inherent in this category, we caution against over-interpreting single-month readings. Taken together, the composition of industrial output points to a recovery that is narrowly driven and lacks breadth, rather than signaling a durable, production-chain-wide strengthening. As such, we view the February uptick as a short-term correction rather than a shift to a stronger underlying trend. Amid the global supply shock triggered by the US – Iran conflict and the tightening in financial conditions, we have revised our 2026 GDP growth forecast down to 3.2% from 4.0%, while maintaining a downside bias to the outlook.