Macroeconomic Evaluation

1. Global Macroeconomic Outlook

The global macroeconomic environment is in a new equilibrium search, with the permanent effects of shocks experienced in the post-pandemic period. This equilibrium search is shaped around the decrease in inflationary pressures, central banks' efforts to normalize monetary policies, and the effects of this normalization process on the global economy. The performance of major economies such as the US and the Eurozone are fundamental determinants that directly affect global liquidity conditions, risk appetite, and capital flows to emerging markets.

The US economy appears to have made significant progress in fighting inflation recently. According to data, the annual inflation rate in the US is at 31.5%. Although this rate has decreased significantly from the record highs during the pandemic period, it still shows that the central bank is far from its 2% target. In this context, the Federal Reserve's policy interest rate is kept at 37%. This high interest rate environment aims to control inflationary expectations and cool the economy. However, this tight monetary policy is creating a slowdown effect on economic activity. The annual growth rate in the US has fallen to 1.5% and the unemployment rate has risen to 7.7%. These data indicate that the US economy is close to a boundary between the "soft landing" scenario and the "recession" scenario, but has not yet entered a recession. The Fed's interest rate decisions are the most important factor determining the direction of global capital flows. High US interest rates offer a yield differential against global assets, potentially preparing the ground for capital outflows from emerging countries. This is a key transmission channel that negatively affects global risk appetite.

The Eurozone, on the other hand, shows a weaker growth performance compared to the US. The annual growth rate in the region remained at 1.2%. The European Central Bank (ECB) has not been able to control inflation as successfully as in the US, and the annual inflation rate was 31.5%. Therefore, the ECB continues its tight monetary policy and keeps its policy interest rate at 2.65. Although the unemployment rate in the Eurozone is lower than in the US at 6.4%, the weak growth data shows that the region is struggling with structural problems after the energy crisis and slowing global demand. The Eurozone's current account surplus (27.6%) indicates that the region maintains its external trade competitiveness, but weak domestic demand creates concerns about the sustainability of this surplus.

The global macroeconomic outlook is following a volatile path due to factors such as uncertainties in monetary policies of the US and Eurozone central banks, geopolitical risks, and trade wars. The high global interest rate environment is increasing the cost of liquidity and increasing investors' risk aversion. In this environment, emerging market assets have become more sensitive to changes in global risk appetite. Whether the US economy enters a recession, the ECB's interest rate cut timing, and geopolitical developments will continue to be critical factors determining global liquidity conditions and risk appetite.

2. Turkey's Macroeconomic Outlook

Turkey's macroeconomic outlook is undergoing a significant transformation within the framework of monetary and exchange rate policies implemented over the past year. This transformation is shaped around steps taken in the fight against inflation, increases in policy interest rates, and efforts for exchange rate stability. Current data show that the first results of these efforts are beginning to be seen, but the path is not yet complete.

Inflation is the most fundamental problem of the Turkish economy. According to TÜİK data, the annual inflation rate is at 31.51%. This figure reflects the cumulative effect of exchange rate and demand inflation shocks experienced in the post-pandemic period. However, the slowdown trend observed in inflation in recent months is evaluated as a result of the tight stance in monetary policy. The Central Bank of Turkey keeps its policy interest rate at 37.0, continuing its aim to control inflation expectations and slow down credit. This high interest rate environment functions as a mechanism to cool domestic demand and reduce inflationary pressures. To assess which stage of the disinflation process we are in, it is important to look at the components of inflation. Although volatility in energy and food inflation continues, the slowdown in services and core goods inflation supports the downward trend in core inflation. Therefore, the current situation shows that the disinflation process is still in its initial stages but is moving in the right direction.

The growth performance has weakened as a reflection of the tight monetary policy. The Turkish economy grew by 2.3% annually. This growth rate is below potential growth, revealing to what extent high interest rates have limited investment and consumption expenditures. The unemployment rate is at 8.1, one of the lowest levels in recent periods. Although this situation shows that the labor market is relatively resilient, the slowdown in growth has the potential to create pressure on unemployment in the coming period.

The external balance is closely related to exchange rate policy and export performance. Turkey's current account balance has shown significant improvement recently, rising to 0.04%. This balance indicates a balance close to zero and significantly reduces the need for external financing. This situation, along with the positive difference between policy interest rates and real interest rates and the achievement of exchange rate stability, has allowed for an increase in foreign exchange reserves. As of September 23, 2026, foreign exchange reserves are at 68.44 billion dollars. High reserves serve as an important shield, increasing the country's capacity to make short-term foreign debt payments and maintain stability in the foreign exchange market.

In summary, Turkey's macroeconomic outlook is experiencing a period where important steps have been taken in the fight against inflation, but the cost of this process is being seen on growth and employment. Exchange rate stability and current account improvement are positive developments that reduce the fragility of the macroeconomy. However, how long the tight stance in monetary policy will continue and what its costs will be for the economy remain questionable issues for inflation to be reduced to target levels and crowned with sustainable growth.

3. Transmission Mechanisms: From Macro to Market

The reflection of macroeconomic policy decisions on financial markets and the real sector occurs through complex and multi-directional transmission channels. To understand the effects of the current high interest rate environment in Turkey on the economy, it is necessary to examine these mechanisms step by step.

From Policy Rate to Domestic Demand and Company Performance Chain:
TCMB's 37% policy rate is the main tool that directly affects the money supply and cost in the economy. This high interest rate increases banks' funding costs. Banks pass these costs on to customers by raising deposit rates and further increasing lending rates. High deposit rates encourage savings, directly weakening consumption and domestic demand. On the other hand, high lending rates discourage both consumers' large expenditures like housing and automobiles, and companies' investment expenditures. This situation leads to a slowdown in total demand. The slowdown in domestic demand pressures companies' sales revenues. Declining sales lead companies to reduce their capacity utilization rates and production volumes. The slowdown in sales revenues and high costs (interest, energy, etc.) narrow companies' gross profit margins. Falling margins weaken companies' profitability and their potential for stock dividend payments. Finally, declining profitability and uncertainties about future periods negatively affect companies' valuations on the stock market (multipliers like P/E, P/B). This chain shows how high interest rates slow demand inflation and company profitability.

Exchange Rate Channel: From Imported Input Costs to Inflation:
Exchange rate stability is of critical importance in fighting inflation in Turkey. TCMB's policy to minimize exchange rate volatility (foreign exchange sales, reserve usage, etc.) aims to control import costs. Since imports account for a large share of total demand, a depreciation of the Turkish Lira suddenly increases the prices of imported raw materials, intermediate goods and energy in TL terms. This triggers a process called "cost-push inflation". For example, when the price of an imported machine part rises, industrial companies that cover this cost increase their prices by passing this cost on to the final product. This increase, combined with other costs entering the production process, expands inflationary pressures. Additionally, exchange rate increases can boost demand for imported goods by reducing the purchasing power of the TL, which in turn fuels demand inflation. Therefore, when exchange rate stability is not maintained, it is extremely difficult to control inflation. The current policy, while slowing domestic demand with high interest rates, also strives to control imported inflation through exchange rate stability.

Global Interest Rate to Foreign Capital Flow and Risk Premium Chain:
The global interest rate environment, especially US interest rates, is the most important external factor determining the direction of capital flows to emerging markets. The US Federal Reserve's 4% policy rate offers a return on "safe haven" assets in global markets. Although Turkey's 37% policy rate appears much higher compared to this return, the risks associated with investing in Turkey (political uncertainty, exchange rate risk, liquidity risk, etc.) balance out some of this high interest rate. Investors make an evaluation based on this risk premium. If there is a decrease in US interest rates, global liquidity increases and risk appetite for emerging market assets rises. This situation increases foreign capital inflows to Turkey (portfolio investments), boosting demand for TL assets and strengthening the TL. Conversely, expectations of an increase in US interest rates tighten global liquidity and investors turn to safer assets. This situation can lead to capital outflows from Turkey, weaken the TL, and increase the risk premium (such as CDS premium, bond yield differential). Therefore, changes in global interest rates have an indirect but strong impact on Turkey's financial stability and stock market performance.

4. Reflections on BIST 30: Sector Channels

Macroeconomic conditions such as high interest rates and exchange rate stability affect different sectors in the BIST 30 index in different ways. The sensitivity of sectors to macroeconomic data creates significant differences in their performance.

Banking Sector: The banking sector is one of the sectors most directly and significantly affected by the high interest rate environment. The high policy rate offers banks the potential to expand their net interest margin (NIM). Banks generate higher income by offering low-cost (deposit) funds and high-cost (loan) funds to the market, profiting from the difference. This factor supports banks' profitability and stock performance. Banks that successfully manage liquidity and control credit risk can enhance their performance in this environment. However, high interest rates slowing the economy can potentially increase risks in banks' loan portfolios (non-performing loans). Therefore, banking stocks are balancing the positive margin effect created by high interest rates with the negative credit risk effect caused by economic slowdown. Generally, bank stocks within BIST 30 are seen as "safe havens" in a high interest rate environment and tend to be a force supporting the index's performance.

Industrial and Holding Companies: Industrial and holding companies experience the effects of high interest rates and exchange rate stability in a complex manner. High interest rates can slow growth by increasing the cost of financing these companies' investment projects. Additionally, high interest rates reduce consumption, pressuring companies' domestic market sales. However, exchange rate stability is a positive factor for these companies. Controlling imported input costs helps industrial companies maintain their production costs and thus their margins. Export-oriented industrial companies, in particular, can maintain their competitiveness and obtain stable foreign exchange revenue thanks to exchange rate stability. Holding companies, through their assets in different sectors such as banking, industry, and energy, are exposed to these effects. Their performance may vary depending on the weight of bank stocks in their portfolio and their export potential. Generally, while exchange rate stability is positive for industrial and holding companies, high interest rates are a pressure factor on domestic demand and investment.

Retail and Consumer Services Sector: These sectors are direct targets of high interest rates. High interest rates increase the costs consumers pay for credit card debts, personal loans, and installment purchases. This situation significantly restricts consumption expenditures. Additionally, high deposit rates make savings attractive, reducing disposable income. The retail sector is one of the most affected by this declining domestic demand. Declining sales negatively affect companies' profitability and stock market valuations. Consumer services (hotels, tourism, entertainment, etc.) face a similar impact. These sectors depend on the vitality of economic activity, and their growth potential is constrained in a high interest rate environment. Therefore, retail and consumer stocks within BIST 30 tend to show weak performance in a high interest rate environment.

5. Scenarios and Monitoring Framework

The future of the Turkish economy will shape around the decisions of policymakers and the course of global conditions. Therefore, instead of a single definitive outcome, evaluating scenarios that could emerge under different conditions offers a more appropriate approach.

Base Scenario: This scenario is based on the assumption that the current policy framework continues and macroeconomic indicators show slow but steady improvement. In this scenario, TCMB maintains its tight stance in monetary policy, and inflation gradually approaches targets. Growth follows a low trajectory but does not enter recession. Current account balance and reserves remain positive. The BIST 30 index shows a volatile trajectory, supported by exchange rate stability and the performance of the banking sector, but pressured by the cost burden created by high interest rates. This scenario can be considered the most likely and reasonable one.

Optimistic Scenario: This scenario is based on the assumption that global and local conditions develop in Turkey's favor. Globally, the recession expectation in the US does not materialize, and the Fed starts interest rate cuts early. This situation increases global liquidity and triggers capital inflows to Turkey. Locally, inflation falling rapidly below expectations and TCMB starting interest rate cuts early stimulate domestic demand and investments. Current account surplus increases and reserves rise. The BIST 30 index rises strongly from both increased global risk appetite and improved local economic expectations. For this scenario to materialize, a decrease in global interest rates and a faster-than-expected disinflation in inflation are of critical importance.

Pessimistic Scenario: This scenario is based on the assumption that global and local conditions turn negative. At the global level, the US economy unexpectedly enters a recession and global demand collapses. Geopolitical risks escalate and energy prices rise again. At the local level, inflation not slowing down despite policy interest rates or demand inflation reviving causes the CBRT to keep interest rates even higher. This situation pushes domestic demand and investments into a deep slump. It puts pressure on the current account and erodes reserves. The BIST 30 index loses significant value due to global risk aversion and local economic uncertainties. For this scenario to materialize, a global recession and a resurgence in inflation must occur.

Indicators to Monitor in the Coming Period: To understand whether these scenarios will materialize, certain indicators need to be closely monitored:

• CBRT Interest Rate Decisions and Statement: Whether there will be a change in interest rates and the tone of the statement will indicate shifts in the policy stance.

• TÜİK Inflation Data (Especially Core and Services): Whether inflation continues its downward trend will determine the effectiveness of policy measures.

• Current Account and Foreign Exchange Reserves: Is the external balance healthy or showing signs of deterioration?

• Exchange Rate Volatility: The volatility in the TL/USD exchange rate will show whether exchange rate stability is maintained.

• Global Data (US Inflation, Interest Rates, Growth): Changes in global conditions will affect external pressures on Turkey.

• Foreign Investment Flows: Foreign portfolio investments in the stock and bond markets are indicators of risk appetite.

6. Conclusion and Evaluation

Turkey's macroeconomic outlook has reached a critical turning point with the steps taken over the past year. The tight stance in monetary and exchange rate policies in the fight against inflation has led to inflation slowing down from a high of 31.5% and significant improvements in the current account and reserves. These developments are positive steps that reduce the country's macroeconomic vulnerabilities and contribute to financial stability.

However, the cost of this improvement process is being felt in growth and employment. The high policy interest rate (37%) is slowing down the economy by constraining domestic demand and investments. The decline in growth to 2.3% is a concrete indicator of this cost. Therefore, the current situation represents a period where "pain is turning into benefit" rather than "benefit causing pain.

The future depends on how we manage this balance. How long will the tight monetary policy continue and how will the normalization process shape up when inflation targets are reached? How will changes in global interest rates affect this process? The BIST 30 index will follow a volatile path, striking a balance between sectors positively affected by high interest rates such as banking, and sectors negatively affected such as retail amidst these uncertainties.

In conclusion, Turkey has begun to establish itself on a more solid macroeconomic foundation, but there is still much work to be done to build a sustainable growth model on this foundation. It will be critical for policymakers not to completely forget about growth while targeting inflation and to adopt a proactive approach against changes in global conditions.

This analysis is for educational and informational purposes only and does not constitute investment advice.

Database (exact figures used in this analysis)