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Turkish Economic Outlook: Household Inflation Fears Easing as Domestic Demand Gains Momentum

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New macroeconomic data for February 2026 suggests a pivotal shift in the Turkish economic landscape. According to the latest findings from the Betam Research Center, household inflation expectations are cooling down, while the manufacturing and retail sectors report a robust recovery in demand. However, a persistent “output gap” remains as production struggles to keep pace with the surge in orders.

1. Inflation Expectations: A 4.5-Point Drop

The most encouraging signal for the Central Bank’s disinflation program comes from the hanehalkı (household) sentiment.

  • 12-Month Projection: Average inflation expectations for a year ahead fell to 50.8%, a significant 4.5-point decrease from the previous month.

  • Shift in Sentiment: Approximately 34.4% of respondents now believe inflation will be lower than current levels, up from the previous month.

  • Demographic Variance: Optimism is highest among public sector employees (44%) and the 45-54 age bracket. Conversely, students (57.3%) and the elderly (54.2%) remain more cautious regarding price stability.

2. Real Sector Confidence Hits Post-2023 High

The manufacturing sector is showing renewed vigor. The seasonally adjusted Real Sector Confidence Index (RKGE) climbed 1.1 points to reach 104.1 in February.

  • This marks the highest level since October 2023, pushing the index back above its long-term average.

  • The Drivers: The recovery is primarily fueled by a spike in both domestic and export order books. Analysts note that the “January dip” was merely transitory, as the underlying trend for the imalat sanayi (manufacturing industry) has turned decidedly positive.

3. The Capacity Utilization (KKO) Paradox

Despite the “spring fever” in confidence and orders, actual factory output remains subdued.

  • The Numbers: Seasonally adjusted Capacity Utilization Rate (KKO) fell by 0.4 points to 74.0%, ending a five-month winning streak.

  • SME Struggle: The decline is most pronounced in small-scale enterprises, where capacity use dropped to 67.6%—the lowest since the pandemic recovery in 2020.

  • Sectoral Divergence: While the high-tech sectors (computer, optics, and electronics) saw a 3.3-point jump in capacity, the textile and apparel industries continue to languish due to their labor-intensive, export-sensitive nature.

4. Retail Booms, Construction Glooms

The divergence between sectors highlights a consumption-led recovery:

  • Retail Trade: The confidence index surged 2.9% to 115.9, hitting a 12-month high. Shopkeepers report a significant uptick in sales activity and a positive outlook for the coming quarter.

  • Construction: In a sharp contrast, construction confidence fell by 2.1%. While current activity remains high, a lack of new order expectations is weighing on the industry’s future.

  • Services: Remained flat at 113.8, as current demand weakness was offset by optimistic turnover expectations for the spring.

Summary: A Two-Speed Economy

The February data paints a picture of a “two-speed” economy. Large firms and retail giants are thriving on resilient domestic demand, while small manufacturers (SMEs) are being squeezed by low capacity and labor costs. For the Central Bank, the cooling inflation expectations offer a much-needed window of opportunity, though the persistent demand for durable goods may keep price pressures alive in the short term.

Sources:  Akbank, Betam

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