Macro and Politics

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the June 19 – 26 period at 14:30 local time today. Based on our calculations derived from the CBT’s analytical balance sheet, we estimate that during the June 19 – 26 period, gross FX reserves declined by USD8.2bn to USD149bn, while net FX reserves fell by USD6.9bn to USD45bn. We expect today’s official reserve data to confirm a reserve decline broadly in line with our estimates. To briefly recall the previous week’s data: During the June 12 – 19 period, foreign investors recorded net purchases of USD465.7mn in the equity market and USD339.7mn in the bond market excluding repo transactions. This marked the strongest weekly foreign equity inflow since the week of April 17, while foreign demand for bonds extended into a second consecutive week. Over the same period, foreigners’ share in the total bond stock increased from 5.7% to 5.9%. During the same week, residents’ FX deposits (excluding gold and adjusted for EUR/USD parity effect) increased by USD870mn, while their total FX deposits (including gold and adjusted for price effect) rose by USD1.5bn. According to the CBT’s official reserve data, gross FX reserves increased by USD5.1bn to USD157.2bn during the June 12 – 19 period, while net FX reserves climbed by USD6.9bn to USD51.9bn. Over the same period, the swap stock rose by USD1.4bn to USD17.4bn, while net reserves excluding swaps improved by USD5.5bn, reaching USD34.5bn.

* The Istanbul Chamber of Industry (ICI) Turkey Manufacturing PMI declined from 49.8 to 47.1 in June, reflecting the continued adverse impact of the conflict in the Middle East on demand conditions and supply dynamics. As a result, the uninterrupted slowdown trend in the manufacturing sector extended into its 27th consecutive month, while the June reading pointed to an acceleration in the deterioration of operating conditions. In this respect, the average PMI reading eased from 48.4 in 1Q26 to 47.5 in 2Q26. In the accompanying note released alongside the data, ICI highlighted that the decline in new orders in June led to a renewed slowdown in production and prompted firms to scale back both employment and purchasing activity. The note also emphasized that the slowdown in production was driven by factors such as market uncertainty stemming from the conflict in the Middle East, the ongoing weakness in new orders and continued price pressures. We maintain our 2026 growth forecast at 3.2%. We expect the holiday-related bridge-day effect in May to push industrial production (IP) into negative territory. However, we expect IP data to return to positive territory in June as this temporary distortion fades and base effects turn more supportive. Looking ahead, we expect economic activity to move toward a more balanced trajectory in 2H26, supported by the gradual easing in financial conditions that we expect to begin during the summer months, along with declining geopolitical uncertainty. We also expect the current loss of momentum in economic activity to become gradually more contained in the period ahead.