Türkiye | A Challenging 2025, Yet 3.6% GDP Growth

Summary

The Turkish economy grew by 3.4% y/y in 4Q25, bringing full-year 2025 GDP growth to 3.6%, slightly below our 3.7% forecast. While tighter financial conditions might pose downside risks -depending on the duration and the scope of the conflict in Iran- we maintain our 2026 GDP growth forecast at 4% for the time being.

Key points

• Key points:
• On the production side, in line with our expectations, industrial activity contracted in 4Q25, services were largely flat, and construction lost significant momentum. Agriculture, after contracting sharply in the first three quarters, posted a technical rebound. For 2025 as a whole, the broad services sector was the main driver of growth, while agriculture made a negative contribution. The positive contributions from construction and industry -at around 1pp- remained relatively modest.
• Our monthly GDP indicator nowcasts 3% y/y growth for 1Q26, based on leading indicators, implying a q/q expansion of around 0.7% following the 0.4% growth recorded in 4Q25.
• Contrary to our expectations on the demand side, private consumption accelerated in 4Q25 while investments contracted on a quarterly basis. Over the course of 2025, domestic demand excluding inventories made a significant contribution to growth, whereas external demand weighed negatively. The imbalance between supply and demand persists, with the output gap continuing to hover around neutral levels.
• The conflict in Iran, and more broadly in the region, entails significant uncertainty regarding its scope and duration, posing downside risks to activity, exerting pressure on trade and the current account balance, and creating upside risks to inflation. However, a well-calibrated policy mix aimed at sustaining moderate growth could help mitigate these geopolitical headwinds, if maintained. We therefore keep our 2026 GDP growth forecast unchanged at 4%, subject to revision in light of further developments.

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