Published on Thursday, June 25, 2026

Türkiye | Growth Moderation Rather than Recession

Summary

After stagnant GDP growth in 1Q26, economic activity remains weak in 2Q26, partly reflecting the impact of the war. We forecast GDP growth of 3.0% in 2026, but uncertainty surrounding the peace process and the commitment of the current policy mix to disinflation continues to cloud the outlook.

Key points

Key points:
Data released so far suggest only a limited recovery in 2Q26, following the flat quarterly GDP growth in 1Q26. On the other hand, firms’ expectations have improved amid prospects for peace in the Middle East.
We nowcast annual GDP growth slowing to around 2% in May, followed by a modest rebound in June. Given the calendar shifts caused by the extended holiday in late May, GDP growth in 2Q26 could remain in the 2.0–2.5% range on an annual basis, based on currently available information.
On the demand side, our nowcast results suggest that the slowdown in domestic demand is being driven by private consumption, while net exports’ contribution could be positive. As a result, we estimate that the demand-supply imbalance has narrowed further, alongside a widening negative output gap.
The recent normalization in energy prices has somewhat eased the trade-off between growth and external balance. However, risks to the external balance remain elevated, particularly given tighter global financial conditions. Therefore, we expect only limited fiscal support going forward. On the inflation front, energy prices have evolved more favorably than we previously expected, which could bring year-end inflation slightly below 30%. However, a rapid easing cycle by the CBRT could jeopardize these gains. Therefore, we expect the CBRT to adopt a more cautious approach to monetary easing.
We forecast GDP growth of 3.0% in 2026, with risks tilted slightly to the upside if favorable energy prices persist and the CBRT embarks on a faster easing cycle. The evolution of the policy mix, together with developments in the peace process, will be key in shaping the outlook.