Macro and Politics

* The consumer confidence index rose from 85.8 to 87.9 in June, reaching its highest level since May 2023. As a result, the index, which averaged 84.8 in the first quarter of 2026, increased to an average of 86.4 in the second quarter. Following a weak performance within the 85–86 range since March amid the negative impact of rising geopolitical tensions on expectations, consumer confidence posted a notable recovery in June, driven by an improvement in sentiment. Looking at the sub-components, the index measuring the financial situation of households at present increased from 69.2 to 72.3, while the financial situation expectation of households over the next 12 months rose from 87.9 to 89.5. The general economic situation expectation over the next 12 months recorded a notable increase from 81.4 to 83.9. Meanwhile, the assessment on spending money on durable goods over the next 12 months — an important gauge for the domestic demand outlook — edged higher from 104.5 to 105.9. Taken together, the recovery observed in consumer confidence throughout the second quarter points to a more balanced domestic demand outlook relative to the first quarter. High-frequency indicators, which we previously reckoned were signaling annual growth below 3% in the second quarter, have shown signs of improvement more recently, suggesting that annual growth in 2Q26 may come in slightly above 3%. Accordingly, we maintain our 2026 year-end growth forecast at 3.2%.

* According to the June Sectoral Inflation Expectations Survey, 12-month ahead annual inflation expectations edged down by 0.01ppt m/m to 23.81% for market participants, remained unchanged at 33.1% for the real sector, and declined by a notable 3.38ppt to 46.13% for households. In addition, the share of households expecting inflation to decline over the next 12 months increased marginally by 0.1ppt to 15.7%, while the proportion expecting inflation to rise fell by 1.46ppt to 66.46%. In line with the recent moderation observed in monthly inflation readings, we had already noted in the June Survey of Market Participants that the pace of upward revisions in year-end inflation expectations among market participants had started to lose momentum. The June Sectoral Inflation Expectations Survey suggests that this trend is now beginning to feed through to inflation expectations of both households and the real sector as well. While we continue to expect monthly CPI inflation to ease toward 1% in June, we reckon that the partial normalization trend in inflation expectations — which had deteriorated following the US-Iran conflict — may continue in the near term. We maintain our 2026 year-end CPI forecast at 28%.