Macro and Politics

* The new Medium-Term Program (MTP) covering the 2027–2029 period introduced substantial revisions to the macroeconomic projections, most notably a marked postponement of the disinflation path relative to the previous program. The 2026 growth forecast was revised down to 3.3% from 3.8%, while the year-end inflation forecast was raised sharply to 28.4% from 16%. Year-end inflation projections for 2027 and 2028 were also revised up to 21% from 9% and to 13.5% from 8%, respectively, effectively pushing the return to single-digit inflation from 2027 to 2029. On the growth front, the 2027 forecast was lowered to 4.2% from 4.3%, while the 2028 projection was cut to 4.6% from 5%. The MTP’s 2026 growth and inflation projections of 3.3% and 28.4%, respectively, are broadly in line with our forecasts of 3.2% and 28%. On the external balance, the 2026 current account deficit is projected at USD47.5bn, equivalent to 2.6% of GDP, marking a substantial upward revision from the previous MTP’s deficit/GDP projection of 1.3%. The revision largely reflects the rise in energy prices amid geopolitical developments, although the MTP projection remains below our forecast of USD54bn, 3% of GDP. The current account deficit/GDP ratio is projected to narrow to 1.9%, 1.8% and 1.6% in 2027–2029, respectively. Overall, we view the new MTP as incorporating the geopolitical and energy-related supply shocks experienced in 2026 into its macroeconomic projections, while preserving the core policy framework centered on disinflation and fiscal discipline. Growth is envisaged to accelerate gradually from 3.3% in 2026 to 5% by the end of the program horizon, while the budget deficit/GDP ratio is targeted to decline from 3.5% in 2027 to 3.1% in 2028 and 2.8% in 2029. In this respect, the new MTP sets out a more measured growth trajectory, while allowing for a considerably more protracted disinflation process than envisaged under the previous program.

* The Treasury and Finance Ministry will release August cash budget figures @ 17:30 local time. The central government budget posted a deficit of TL378.1bn in July, while the primary balance recorded a deficit of TL51.3bn. Following a TL114.2bn surplus in June, largely driven by base effects stemming from deferred tax collections and temporary tax payments, the budget swung back into deficit in July as these effects faded and budget expenditures rose sharply. Accordingly, the cumulative central government budget deficit reached TL1.3tn in Jan–Jul, corresponding to 48.7% of the TL2.7tn full-year deficit target for 2026. On a trailing 12-month basis, the cumulative budget deficit widened to TL2.1tn from TL1.8tn. Today’s Treasury cash balance data for August will provide an early indication of the August central government budget figures, due to be released on September 15. We forecast the 2026 year-end budget deficit at TL2.8tn, equivalent to 3.3% of GDP.