Türkiye | From slowdown in 3Q to limited recovery expectation for 4Q

Summary

Hard and leading data indicate a quarterly GDP growth slowing down to 0.5–1.0% q/q in 3Q25 (vs 1.6% q/q in 2Q), driven by weakening signals in domestic demand. 2025 GDP growth will likely be in the range of 3.5–4%, so we evaluate the risks on our growth forecast of 3.7% as balanced.

Key points

• Key points:
• Despite the slight rise in industry and services production in August, the trend remains weak, whereas construction remains supportive. Our Monthly GDP Indicator nowcasts around 4.5% y/y growth as of September, implying a slowdown to 0.7% q/q growth in 3Q25.
• The softening in demand have stemmed from private consumption and external demand, while investment supports aggregate demand. Despite subdued external demand, fall in imports may lead net exports’ contribution to be positive on quarterly. The change in demand composition evolved in the desired direction, and we expect cooling demand to support disinflation; but high inflation expectations, distorted pricing behavior, and potentially increasing wealth effects on the rise in gold prices could be negative factors.
• Leading indicators suggest that, with the expected easing in financial conditions, firms anticipate a recovery in demand and production in 4Q25; and household expectation surveys signal a pickup in spending. That said, as of October, our big data indicators point to a steady consumption while external demand may remain weak.
• The challenges on inflation require CBRT to be prudent and deliver limited rate cuts. As financial conditions continue to ease, the increasing need to deliver a more cautious monetary stance might result in a slower easing path than our prev. expectations. On fiscal policy, the negative impulse seen over the past 2 quarters may reverse in 4Q25.
• Despite tariff-war uncertainty, global growth remains resilient; expected EU defense/infrastructure expenditures and expansionary policy measures in some other countries could dampen negative tariff effects. Overall, we view risks to our GDP growth forecasts as balanced and keep our forecasts at 3.7% and 4% for 2025 and 2026, respectively.

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