Macro and Politics

* TURKSTAT will release September foreign trade figures at 10:00 local time. Preliminary September trade figures released by the Ministry of Trade point to a broadly stable trade deficit. Exports increased by 15.4% y/y to USD26bn, while imports rose by 5.9% y/y to USD31.2bn. Accordingly, the trade deficit remained unchanged from August at USD5.2bn, while the trailing 12-month deficit narrowed from USD97.5bn to USD95.8bn. We expect the current account to register a surplus of USD2.9bn in September. Based on our estimates, the balance of payments-defined trade deficit narrowed to USD3.3bn, while net travel revenues moderated to USD6bn and the services surplus stood at around USD8.1bn. We maintain our year-end current account deficit forecast at USD54bn (3% of GDP).

* The seasonally adjusted unemployment rate increased from 7.9% to 8.4% in September, with the number of unemployed rising by 198,000 m/m to nearly 3mn. Employment declined by 49,000, while the labor force expanded by 149,000. The youth unemployment rate for the 15–24 age group rose by 1.6pp to 14.8%. Meanwhile, the broad underutilization measure edged up from 31% to 31.2%. A breakdown of the subcomponents shows that the combined rate of time-related underemployment and unemployment increased from 20.3% to 20.5%, while the combined rate of unemployment and potential labor force rose from 20.3% to 20.7%. September's figures point to renewed labor market weakness following the improvement in headline unemployment in August. The combination of declining employment and an expanding labor force suggests that the increase in unemployment reflects weakening labor demand rather than participation dynamics alone. Rising youth unemployment and a further deterioration in underutilization indicators lend support to this view. With broad underutilization reaching 31.2%, labor market slack remains considerably more pronounced than the historically low headline unemployment rate alone would suggest. We see these developments as early indications that the cooling in domestic demand is increasingly feeding through to employment.