Türkiye Economic Outlook. June 2025

Summary

The sensitivity remains on growth and employment outlook, potentially generating a policy mix where monetary stance staying relatively tighter compared to our early March baseline scenario and fiscal policy not being able to be tightened as targeted in the Medium Term Program (MTP).

Key points

• Key points:
• We keep our GDP growth forecasts the same, given the strong 1Q25 performance, potential quasi-fiscal policies and no dramatic impact from weaker external demand. We forecast 3.5% GDP growth for 2025 and 4% for 2026.
• We had already revised our inflation projections to 31% (vs. 29%) for end 2025 and 21% (vs. 20.5%) after the twin shocks of mid-March and early April. Despite the positive surprises of recent months, we stay prudent on our inflation projections due to uncertainties about the level of real rates, food inflation, energy and administrative prices.
• We expect the monetary easing cycle to support a continued normalization of funding cost towards the policy rate -as seen since June 10th- and to proceed with policy rate cuts starting in July, ultimately reaching 36% by the end of 2025.
• On currency, we evaluate the room for further real appreciation after summer has vanished with the inflation trend going below 2% and the downside pressure increasing over the industry. We maintain our currency forecasts of 45 and 52 against the US dollar for the end of 2025 and 2026, respectively.
• We evaluate the balance of risks on our forecasts tilted to the downside for growth and inflation, which would also weigh down on our exchange rate and interest rate forecasts. Yet, uncertainties on external and domestic factors keep us cautious.

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