Macroeconomic Evaluation

1. Global Macroeconomic Outlook

The global macroeconomic environment is going through a complex phase in which policy divergence among advanced economies is deepening, while inflation dynamics are shaped by supply-side shocks (energy, logistics) and the structural stickiness of services inflation. While the U.S. Federal Reserve (Fed) keeps its policy rate at 4.0 (data period: 08.10.2026), the September 2026 dot plot projections signal an average of 4.1 for the next year and 3.9 for two years ahead. This points to a slower, "higher for longer" interest rate roadmap than what market pricing anticipates. U.S. inflation (CPI annual) stands at 3.4 with the August 2026 data, while core PCE (the Fed's preferred gauge) is at 3.0 annually and core CPI at 2.4. Structural stickiness in services inflation and shelter lags make a sustained approach to the 2.0 target difficult. The fact that 1-year inflation expectations remain at 4.6 (September 2026) shows that central bank credibility is not fully established, and therefore real rates are difficult to make effective through the inflation expectations channel.

On the growth side, the U.S. economy recorded 2.2 quarterly and 2.2 annual growth in the second quarter of 2026 (slowing from 2.5 in the previous quarter). Although retail sales proved consumer resilience with a monthly increase of 1.2 and annual increase of 6.0 in August, consumer confidence fell to 81.9 points in September (from 88.6), signaling a notable breakdown. In the labor market, the weak NFP increase of 29 thousand in September, the decline in JOLTs job openings to 7,079 million, and the unemployment rate rising to 4.2 (broad U-6 at 7.6) suggest that the "soft landing" scenario is evolving toward a "no landing" or "late landing" risk. Wage growth, at 3.0 annually (September), remains above productivity growth, keeping unit cost pressure alive.

The Eurozone (EU) picture is more fragile. Although the ECB cut its policy rate to 2.65 (08.10.2026), year-end inflation for September 2026 rose to 3.8 (from 3.2), core inflation to 2.5 (from 2.4), while annual PPI inflation jumped to 8.2 (from 5.8) with August data. This shows that the base effect from the reversal in energy prices and supply chain pressures continue to pose a pipeline pressure risk from producer prices to consumer prices. Growth in 2026 Q2 was positive but weak at 0.6 quarterly and 1.2 annually. Industrial production is on the verge of stagnation with July monthly -0.1 and annual 0.1. Consumer confidence is at -16.5 and the economic expectations index at 97.9, indicating contraction. Unemployment remains low at 6.4, but with annual wage growth of 3.0 (Q2), real wages are still in negative territory. With debt/GDP at 87.8 and budget deficit/GDP at -2.9 (2025 data), the reinstatement of fiscal rules will create procyclical pressure in the 2025-26 period. The current account surplus of EUR 36.5 billion (July) and trade surplus of EUR 14.2 billion provide a protective buffer through external balance resilience.

In terms of global liquidity; DXY is relatively firm at 102.13, VIX is low but rising at 15.41. The U.S. 10-year Treasury yield (5-year 4.99, 30-year 5.61) moving in a steepening direction signals an increase in term premium and that the market has internalized the Fed's "higher for longer" description. Brent is at 103.57 USD/barrel, WTI at 90.85; OPEC+ restrictions and geopolitical risk premium keep energy prices on an inflationary path. Gold is at record levels of 4159 USD/oz; central bank purchases, relatively low real yields, and geopolitical insurance demand support these levels.

2. Turkey's Macroeconomic Outlook

The Turkish economy is in the "mid-disinflation phase" of the disinflation process within the tight monetary policy framework initiated in May 2023. The CBRT kept its policy rate at 37.0 in the September 2026 meeting, and the post-August data flow requires a stance focused on "expectation management" and combating "inflation inertia." According to TUIK data, September 2026 CPI annual inflation came in at 29.73 (forecast 30.3, previous 31.51), monthly at 1.84 (forecast 2.3). PPI annual 27.38 (previous 27.95), monthly 2.07. Directional improvement in annual inflation (disinflation) is clearly observable; however, monthly inflation (especially PPI at 2.07) still runs at levels inconsistent with annual targets (assuming a 24-25% annual band), and structural stickiness continues in services and processed food subgroups.

The real interest rate calculation is critical: Policy rate 37.0, current annual inflation 29.73 => ex-post real rate ~5.6. If the 12-month-ahead expectation (CBRT Survey of Expectations data not in block, qualitative: market expectations ~35-40 band) is taken as the base, the ex-ante real rate may remain lower. Deposit rate (EVDS, 01.10.2026) is at 43.3, consumer loan rate at 64.74 (August). These levels suppress domestic demand through the credit demand channel and deposit collection channel.

Growth dynamics are slowing: 2026 Q2 GDP quarterly 1.1 (previous 0.3), annual 2.3 (forecast 2.9, previous 2.6). Annual growth falling below forecast reflects the impact of domestic demand compression and real credit contraction. Industrial production July monthly -1.0, annual -0.32; capacity utilization rate in September recovered slightly to 74.2 (previous 73.5) but remains below the historical average (76-78). Retail sales July monthly 0.2, annual 10.4 (nominal), but since real retail sales decline relative to inflation, consumer spending is contracting in real terms. Unemployment rate with August data is 7.7; labor force participation rate 52.5. With business confidence at 102.0, consumer confidence at 91.9, and economic expectations index at 101.3 (September), confidence indices fluctuate around the "normal" (100) level; this shows that policy uncertainty has decreased but household purchasing power is eroding.

There is a notable improvement on the external balance side: July current account balance +36 Million USD (forecast 0,036 Mln, previous -4.3 Bln). The 12-month cumulative current account balance turning to surplus is supported by the strength of tourism revenues (Q2 15.9 Bln USD) and export performance (September 25.98 Bln USD). However, imports (September 31.21 Bln USD) remain above exports, keeping the trade deficit at 5.23 Bln USD in September. Foreign exchange reserves (weekly, 61,563,2026) at 61.56 Bln USD (previous 62.81 Bln); the inadequacy of net reserves (excluding swaps) remains a risk factor. In the budget balance, August posted a surplus of 12.9 Bln TRY (previous -378.1 Bln) due to seasonal factors (VAT, temporary taxes) and deferred expenditures; in the remainder of the year, fiscal discipline (primary surplus target) is critical for the fiscal arm of disinflation.

The Real Effective Exchange Rate (REER) is at 105.45 (2003=100) index level in September; the real appreciation of the TL pressures growth and the current account balance through the external demand channel (net exports channel). USD/TRY at 49.21, EUR/TRY at 55.32 (08.10.2026) follow a relatively stable course; this reflects the CBRT's "managed float" stance that does not target the exchange rate but prevents excessive volatility, and foreign portfolio inflows (carry trade) supporting the currency.

3. Domestic Demand, Credit and Liquidity

The transmission mechanism of monetary policy on domestic demand operates through the following chain: Policy rate (37.0) -> Marginal funding cost of the banking system (ODF/LDF spread) -> Deposit rates (43.3) and Loan rates (Consumer 64.7, Commercial higher) -> Real cost of credit (Nominal rate - Expected inflation) -> Consumption and Investment Decision -> Aggregate Domestic Demand -> Output Gap -> Margins and Inflation.

The data indicates this mechanism is working: M3 money supply annual growth with early October data is 26.11 (previous 29.78) - nominal growth is still high but slowing. Real M3 growth is below zero (real money contraction) based on inflation (29.73). Credit growth (annual, August) is 36.32 (previous 36.60) - nominal slowdown, net contraction in real terms (inflation 31.51 August). The consumer loan rate at 64.74 nearly freezes housing and vehicle loans. In commercial loans, high real costs also complicate working capital financing and delay investment (capex delay). The deposit pricing race among banks pressures margins (NIM); interest income is rising but profit spreads are narrowing.

In liquidity management, the CBRT keeps market liquidity slightly tight (tight liquidity stance), causing overnight rates to trade around the policy rate (37.0), near the upper band (estimated LDF 42.5-45.0 range). This creates an incentive to hold TL (carry) but increases banks' funding costs, strengthening credit channel pressure. As companies' cash flows contract, debt service capacity needs to be monitored in risky segments (SME, high leverage).

4. Global Risk Appetite and Interest Rate Expectations

Global risk appetite is in a fragile balance with the Fed's "higher for longer" description and rising U.S. long-term yields (30Y 5.61, 5Y 4.99). The VIX at 15.41 is still in the "comfortable" (complacent) zone but on an increasing trend (+2.2). A strong dollar at DXY 102.13 increases financing costs for emerging market economies (EME). The upward revision of Fed rate projections (Dot Plot) (Year 1 4.1, Year 2 3.9) shows that market pricing (fed funds futures) has not yet tightened sufficiently, increasing uncertainty about the timing of the "final hike" or "first cut."

In this environment, foreign portfolio capital entering Turkey (hot money / carry trade) remains attractive due to the high real interest rate differential (Turkey 37% vs US 4% -> ~3300 bp nominal spread, real spread ~25-30 bp ex-ante). However, the "stickiness" of these flows can quickly reverse in the event of the Fed's first cut, a geopolitical shock, or an unexpected depreciation of the TL (sudden stop risk). The ~0.75%-0.80% increase in the BIST 100 (12.213) and BIST 30 (15.137) indices on 08.10.2026 is occurring through a combination of domestic investor purchasing power (flight from deposit rates) and foreign buying. The foreign share ratio (data not in block, qualitative) is still at historical lows; this means that selling pressure could be limited when risk appetite declines, but inflows will also remain weak.

US 3-month Treasury yield is 4.04 (aligned with policy rate), 5-year 4.99, 30-year 5.61. The steepening at the long end of the curve (bear steepening) reflects an increase in the term premium; this raises the discount rate for long-term investment projects (infrastructure, energy), thereby lowering NPVs (Net Present Value). For Turkey, this increases long-term foreign direct investment (FDI) and project financing costs.

5. Budget and External Balance

In the budget balance, the August surplus of 12.9 billion TL may have corrected the cumulative picture for the first 8 months of the year (data not in block, qualitative: January-August generally shows a deficit). However, the structure of this surplus is critical: On the revenue side, inflation-driven VAT and temporary revenues (e.g., special issuance incentives, tax amnesty remnants), and on the expenditure side, the flexibility of personnel, interest, and transfer expenditures is low. Targeting the year-end budget deficit/GDP ratio (estimated in the official program at ~5-5.5% band) requires maintaining the quality of expenditures (current vs investment). The share of interest expenditures in the budget reaches 3-4% of GDP as long as the policy rate remains at 37; this makes it difficult for the primary surplus to be "supportive" in the fight against inflation.

The near-balancing of the current account with July data (+36 million USD) signals a transition to a surplus on a 12-month cumulative basis (data not in block, qualitative: tracking of last 12 months data is required). Tourism revenues reached record levels at 15.9 billion USD in Q2; this plays the role of "invisible exports" in financing the current account deficit. However, the seasonal fluctuation of tourism revenues and their sensitivity to geopolitical risks (Middle East, Ukraine) carry the risk that this source ceases to be a stable financing tool. The bulge in exports (September 25.98 billion) and imports (31.21 billion), combined with the global demand slowdown (EU growth 1.2, US 2.2) and the real appreciation of the TL (REER 105.45), increases the risk of the current account shifting to a slight deficit in the coming period.

Foreign exchange reserves are 61.56 billion USD (gross, 61.563,2026). Net reserves (excluding swaps, required reserves) are still negative or at very low levels (data block does not distinguish net reserves, qualitative: monitoring of CBRT weekly press bulletin is essential). This indicates that the buffer capacity against external shocks (portfolio outflow, energy price shock) is limited. The short-term external debt stock (data not in block, qualitative: tracking of CBRT International Investment Position data) and maturities falling due in the next 12 months (rollover needs) are at manageable levels provided they can be covered by the current account surplus; however, the risk of rollover ratios falling below 100 should be monitored.

6. Energy, Commodities, Foreign Exchange and Bond Markets

Brent is at 103.57 USD/barrel (+3.4), WTI at 90.85 (+2.9); in an upward trend due to the combination of OPEC+ supply discipline, China demand uncertainty, and geopolitical risk premium (Middle East tension). Since ~20-25% of Turkey's imports are energy (crude oil, LNG, coal), Brent remaining above the 90-100 USD band carries the risk of creating an additional cost of around 10-15 billion USD (energy bill) for the current account towards the end of the year. This could lead to the erosion of the current account surplus and depreciation pressure on the TL.

Gold is at record levels of 4159 USD/ounce; Gram gold is 6580 TL. While the exchange rate (USD/TRY 49.21) is relatively stable, the increase in gold in TL terms (0.48%) is parallel to the increase in USD terms (0.45%). This indicates that domestic investors' demand for inflation protection (hedge) and portfolio diversification (safe haven demand) continues, and that real interest rates are still "not sufficiently positive" or that a "policy uncertainty premium" is reflected in the gold price.

In the bond market; US 5Y 4.99, 30Y 5.61. Turkey Eurobond yields (data not in block, qualitative: tracking of JPM EMBI Global Diversified Turkey spread) move with Fed yields and EM risk premium. The high policy rate (37%) and the real returns offered by TL-denominated government bonds (GDDS) (data not in block, qualitative: ~45-50% band for 2-3 year maturities) are shifting the portfolio preferences of domestic banks and funds towards TL assets (financial repression effect is weak, carry trade dominates). However, when calculating USD-denominated returns including the FX risk hedging cost (swap cost ~ policy rate differential ~37%), the attractiveness for foreign investors is only valid "if the exchange rate holds" (carry works if FX stable).

7. Transmission Mechanisms: From Macro to Market

The transmission of macroeconomic variables to financial markets and the real economy operates through three main channels:

1. Interest Rate Channel:
Policy Rate (37.0) → Bank Deposit/Loan Rates (Deposit 43.3, Consumer 64.7) → Real Cost of Credit (Nominal - Expected Inflation) → Consumption (Durable Goods, Housing) and Investment (Machinery-Equipment, Construction) → Total Domestic Demand → Output Gap → Company Sales/Profit Margins → Equity Valuations (P/E, EV/EBITDA).
Data linkage: M3 growth fell from 26% to 29%, credit growth from 36,322% to 36.3% (nominal slowdown, real contraction). Industrial production is -0.32 year-on-year, capacity utilization is 74.2. This indicates that the channel is working in the direction of "domestic demand suppression -> production contraction". Company margins are squeezed between cost push (PPI 27.38) and demand pull (weak domestic demand).

2. Exchange Rate Channel:
Policy Rate / Carry Trade → TL Appreciation (REER 105.45) / Exchange Rate Stability (USD/TRY 49.21) → Imported Input Costs (via PPI) → Producer Prices → Consumer Prices (Pass-through rate ~0.3-0.4 estimated in literature).
Data linkage: The REER level of 105 (2003=100) indicates that the TL is overvalued in real terms. This is the most important factor suppressing imported input costs (PPI monthly 2.07, annual 27.38). However, exporter competitiveness is eroding; export growth (annual nominal) remains weaker than imports. If exchange rate protection (FX intervention) is removed or carry trade reverses, the exchange rate channel suddenly starts working in an "inflationary" direction (pass-through).

3. Global Liquidity / Risk Premium Channel:
Fed Rate / US Treasury Yields (5Y 4.99, 30Y 5.61) + VIX (15.4) + DXY (102) → Emerging Markets Risk Premium (EMBI Spread) → Foreign Capital Flows (Portfolio / FDI) → TL Demand/Supply → Exchange Rate / Bond Yields → Bank Balance Sheet Capacity (Capital Adequacy) → Credit Supply.
Data linkage: Fed dot plot revised upward (4.1/3.9), US 30Y 5.61. This increases the "risk-free" return, thereby raising the risk premium requirement for EM assets (Turkey Eurobond, Equities, TL). VIX at 15 is still low but rising. If foreign buying (net portfolio flow - data not in block, qualitative: CMB/TCMB data tracking) is positive, it supports the exchange rate and BIST; if negative, it creates selling pressure in both asset classes.

8. Reflections on BIST 30: Sector Channels

High interest rate / Disinflation / Real TL appreciation / Domestic demand contraction combination affects sectors differently:

• Banking (Weight ~37-40%): Win/Loss Balance. High interest: Net Interest Margin (NIM) pressure (deposit cost 43%+), but high asset yield (loans 50-65%). Loan growth is shrinking in real terms (asset growth slowdown). Credit quality (NPL) is still low, but the increase in "Stage 2" (watch list) should be monitored. Valuation (P/B ~1.0-1.2) is still below historical average; ROE at 30-40% levels is "abnormal" (excess return), but is it sustainable? When rate cuts begin, NIM normalizes, ROE declines; the "rate cut rally" may be temporary.

• Industrial / Export-oriented Holdings (TÜPRAŞ, FROTO, ARCLK, FORDOT etc.): Loser (Short Term). Real TL appreciation (REER 105) -> Sales revenues in TL shrink, while costs in USD (raw materials, energy) remain fixed. Margin compression. Domestic demand contraction (white goods, automotive) hits local sales. Brent at $103 -> Refinery margins (crack spread) are good, but TL appreciation hurts.

• Retail / Consumption (BIM, MGRO, MAVI etc.): Loser. Real wage decline (inflation 30%+, wage increase ~30-0.1% nominal but lagged), consumer confidence at 92, real credit contraction -> Footfall and basket size are under pressure. Hard discount formats like BIM are relatively resilient (trade-down effect).

• Holdings (ISCTR, KCHOL, SAHOL, DOAS etc.): Mixed. NAV (Net Asset Value) discounts (conglomerate discount) are still high. Performance of portfolio companies (ex-banks) is weak. At the holding level, cash position and debt structure (FX/TL, fixed/float) are critical. High interest rates increase holding financing costs.

• Energy / Oil (TUPRS, PETKM, AYGAZ): Neutral/Positive. High Brent ($103) supports refinery margins. Natural gas/electricity prices are regulated (tariffs), indexed to inflation. TL appreciation reduces import costs (positive) but also lowers sales revenue (negative). Net effect depends on crack spread and regulator decisions.

• Construction / Cement (CIMSA, BOLUC, AKCNS): Loser. High loan interest rates (mortgage ~50-37%+) kill demand. Input costs (cement, iron, energy) move with inflation, while selling prices (title deed, credit customers) adjust with a lag. Real sales (units) decline.

9. Scenarios and Monitoring Framework

Base Scenario (Probability ~55%):

• Macro: Disinflation continues slowly but steadily (Year-end CPI ~28-30%, Year-end 2027 ~18-20%). TCMB keeps the policy rate at 37 until 2027 Q1-Q2, then begins gradual cuts (total 500-600 bp within the year). Growth 2026 ~2.5%, 2027 ~3.0% (below potential). Current account is slightly unbalanced (-1% of GDP). Fiscal discipline is maintained (primary surplus ~0.5-1.0% of GDP).

• Market: BIST 30 earnings growth is nominally high (inflation equivalent), flat in real terms. Valuation (P/E) expands with rate cut expectations (re-rating). USD/TRY depreciates slowly (year-end ~52-54).

• Data to Monitor: Monthly CPI/PPI trend (especially services), 12-month current account imbalance, TCMB Inflation Report / Press Conference language, Fed dot plot / Jackson Hole / FOMC minutes, Brent price.

Optimistic Scenario (Probability ~20%):

• Trigger: Global energy prices fall (Brent <80$), EU growth accelerates, Fed cuts early and aggressively (below 3.0% by mid-2027). Structural reforms in Türkiye (labor market, taxation, savings incentives) accelerate.

• Result: CPI falls below 25% by year-end. TCMB starts early cuts in late 2026/early 2027 (total 1000+ bp). Real rates remain positive. Foreign portfolio inflows intensify (carry + appreciation bet). Reserves rise rapidly (70 billion USD+). BIST 30 hits record highs (in TL terms). The exchange rate appreciates (USD/TRY ~45-47).

• Risk: " Premature easing -> Expectations deteriorate -> Currency depreciation -> Inflation returns (1990, 2001, 2018 experiences).

Pessimistic Scenario (Probability ~25%):

• Trigger: Geopolitical shock (Strait of Hormuz, Ukraine escalation) -> Brent >130$. OR Fed stays "higher for longer", 10Y yield remains >5.0% -> Portfolio flight from EM (Sudden Stop). OR Domestic policy credibility is shaken (rate cut pressure, election economics).

• Result: CPI inertia is not broken, year-end >32%. TCMB is forced to hike rates (40-37%). Real rates rise but credit contraction deepens -> Recession risk (GDP growth <1%). Current account deficit widens (> -3% of GDP). Reserves erode (<55 billion USD net). TL depreciates (USD/TRY >55-60). BIST 30 rises nominally in TL terms but collapses in USD terms. Bank NPLs increase.

• Breakpoints to Watch: Net reserves falling below 50 billion USD, 12-month current account imbalance dropping below -20 billion USD, Monthly CPI remaining >2.5% for 3 consecutive months, Fed Funds pricing remaining >4.0% for end-2027.

10. Conclusion and Evaluation

The Turkish economy is managing the "costly disinflation" phase of tight monetary policy. The policy rate is 37%, and real rates are kept at positive levels to anchor expectations. Data shows the process is working (annual CPI 31.5 -> 29.7, current account balancing, real credit contraction); however, the "last mile" (descent to single-digit inflation) is the hardest part. Services inflation, wage-price spiral risk, real appreciation at REER 105 (competitiveness loss), and the impact of the global rate environment (Fed higher for longer) on external financing costs make the timing and pace of the exit strategy critical.

Fiscal discipline, financing of the current account imbalance, and reserve accumulation form a three-legged stool supporting the credibility of monetary policy. This balance is fragile: any weakening of one leg (budget blowout, current account deficit growth, reserve loss) could create rate cut expectations, leading to TL depreciation and a resurgence of inflation.

For BIST 30; the banking-heavy index structure, the "NIM peak" dynamics brought by the rate cycle being at its "peak", and the "credit growth bottoming" dynamics are intertwined with the potential for a "rate cut thank-you rally". Sectoral differentiation (stock picking) is critical: exporter industrials and retail carry margin risk from real demand contraction and currency loss; while banking and energy (hedged) are relatively protected. In holdings, transparency and increased capital efficiency (ROIC > WACC) are required for the NAV discount to close.

This analysis is prepared based on the data set dated 09.10.2026 and is for educational and analytical purposes; it does not constitute investment advice. Due to the nature of the macroeconomic environment, new data flows (especially monthly inflation, current account imbalance, Fed decision) can rapidly change scenario probabilities. Investment decisions should be made with your own risk tolerance and in consultation with your advisor.

Data Base (key indicators used in analysis)