Turkey's July Internal Demand Index Plummets: A Signal of Economic Contraction

In July, the internal demand index plunged unexpectedly, amplifying signs of economic contraction.

Core Metrics: Diving into the Indicator's Depths

■-3.2 % year‑over‑year decline, reversing the +2.1 % rise recorded the month before.

■Retail sales fell 2.8 % YoY.

■Household consumption dropped 4.5 % YoY.

■Industrial production shrank 1.7 %, reflecting the spill‑over of demand weakness.

Financial Landscape: Liquidity and Fiscal Ripples

■Repo rates rose to 0.75 %, signaling short‑term liquidity tightening.

■The Central Bank continues its QT (quantitative tightening) agenda, targeting a %1.9 reduction in M2 money supply.

■Short‑term external debt stock increased by %3.2, highlighting a strain in capital flows.

Market Echoes: Equities and Foreign Flows

■BIST 100 index slipped %1.4 following the internal demand slump.

■Foreign investors purchased €2.3 bn in bonds, reaching a six‑month peak.

■Forex deposits rose %5.6, underscoring a retreat from risk assets.

The sharp contraction in the internal demand index once again exposes the fragility of Turkey's economy. Liquidity tightening and the central bank's restrictive stance are pushing corporate financing costs higher, while the rise in external debt stock adds to systemic risk. In the short term, credit availability may tighten and consumer spending could further contract, prompting a downward revision of growth forecasts. Over the longer horizon, demand‑driven stimulus measures and targeted liquidity injections will be essential, particularly for the industrial and retail sectors.