Macro and Politics

*Istanbul Chamber of Industry (ICI) Turkey August Manufacturing PMI will be announced @ 10:00 local time. The ICI Turkey Manufacturing PMI rose to 47.7 in July from 47.1 in June. However, with the headline index remaining below the 50-threshold, the downturn in manufacturing activity extended into its 28^th consecutive month. In its accompanying note, the ICI noted that challenging conditions in the manufacturing sector persisted amid weak market conditions and slowing new orders. Firms continued to scale back production, employment and purchasing activity in July. Moreover, the July ICI Turkey Sectoral PMI survey showed that only three of the ten monitored sectors recorded simultaneous increases in both output and new orders. Looking ahead to the second half of the year, we expect the gradual easing in financial conditions and the decline in geopolitical uncertainty to moderate the loss of momentum in economic activity and support a more balanced growth profile. We maintain our 2026 GDP growth forecast at 3.2%.

* The Turkish economy expanded by 1.1% q/q and 2.3% y/y in 2Q26, slightly below our 2.6% y/y forecast, while first-quarter growth was revised up to 0.3% q/q and 2.6% y/y. The expenditure breakdown points to a more pronounced loss of momentum in domestic demand. Household consumption contracted by 1.3% q/q, marking a second consecutive quarterly decline, although its 3.5% y/y increase kept private consumption as the largest contributor to annual growth, at 2.3ppts. Public consumption fell by 2.0% q/q and 1.8% y/y, thereby supporting the rebalancing of domestic demand and the disinflation process, while investment remained broadly flat on a quarterly basis and increased by a modest 0.6% y/y, suggesting that tight financial conditions continued to weigh on investment appetite. Meanwhile, net exports returned to a positive contribution to annual growth, adding 0.6ppt after subtracting 2.5ppts in 1Q26, reflecting both a recovery in exports and weaker import demand amid softer domestic demand. On the production side, industrial activity staged a notable recovery, with industry and manufacturing expanding by 2.9% and 3.3% q/q, respectively, while agriculture also recorded strong growth. Overall, the second-quarter data point to a clearer moderation in domestic demand, alongside an improvement in the contribution from net exports and a recovery in manufacturing activity. Looking ahead, we expect the loss of momentum in economic activity to ease in 2H26 as financial conditions gradually loosen and geopolitical uncertainties subside, although we do not envisage a strong or broad-based acceleration in growth. We maintain our 2026 GDP growth forecast at 3.2%.

* The seasonally adjusted unemployment rate rose from 7.6% to 8.1% in July, while the broad underutilization rate — a more comprehensive gauge of labor market conditions, which includes time-related underemployment, potential labor force and unemployment — increased from 28.8% to 30.6% over the same period. A breakdown of the subcomponents shows that the combined rate of time-related underemployment and unemployment rose from 18.6% to 20.8%, while the combined rate of unemployment and potential labor force increased from 19.2% to 19.5%. July’s data suggest that the improvement observed in the labor market in June proved short-lived, with signs of weakness becoming more pronounced once again. In particular, the rise in the broad underutilization rate back above the 30% threshold, coupled with the marked increase in time-related underemployment, indicates that significant slack persists in the labor market beyond what is captured by the headline unemployment rate.