Macro and Politics

* The Istanbul Chamber of Industry (ICI) Turkey Manufacturing PMI rose to 48.1 in August from 47.7 in July, reaching its highest level since May. Nevertheless, with the index remaining below the 50.0 no-change threshold, the deterioration in manufacturing operating conditions extended to a twenty-ninth consecutive month. The accompanying release noted that the war in the Middle East continued to weigh on the sector, compounding subdued demand conditions and elevated market uncertainty. Higher fuel and oil costs pushed input cost inflation to a three-month high and fed through to selling prices. Both total new orders and new export orders continued to moderate, albeit at slower rates than in July. Meanwhile, data released yesterday showed that the Turkish economy expanded by 1.1% q/q and 2.3% y/y in 2Q26. The expenditure breakdown pointed to a more pronounced loss of momentum in domestic demand, while the return of net exports to a positive contribution and the recovery in manufacturing activity stood out in the growth composition. High-frequency indicators currently point to annual growth above 3% in 3Q26. Looking ahead, we expect the loss of momentum in activity to ease in 2H26, supported by gradually looser financial conditions and an assumed moderation in geopolitical uncertainty. We maintain our 2026 GDP growth forecast at 3.2%.