Türkiye | Hard landing or not?

Summary

Hard data confirms a robust quarterly GDP growth in 1Q25, similar to the previous quarter (1.7% q/q in 4Q24), driven primarily by domestic demand. Leading indicators signal a broad-based weakening in activity for 2Q25. We maintain our 2025 GDP growth forecast of 3.5% with risks becoming tilted to downside.

Key points

• Key points:
• Supply-side indicators diverged in 1Q25, with industrial production slowing down; while services and construction remained supportive. March production data, however, signals a broad-based deceleration.
• The increasing uncertainty due to the domestic turmoil by mid-March and the tariff shock as of April in addition to the tighter financial conditions have caused a rapid worsening in sentiment indicators in April regarding current conditions and short-term expectations for 2Q25.
• Our GDP nowcast indicators show a clear deceleration in activity for 2Q25 but not as much as implied by the soft indicators. We will monitor whether this trend will be confirmed by hard data or not.
• Our demand indicators point to a further slow-down in domestic demand on a quarter on quarter basis, while the net exports contribution to GDP could remain negative in 2Q25.
• Tightening financial conditions, more restrictive monetary policy and heightened global uncertainty triggered by the tariff wars altogether signal challenging conditions for both production and demand in the near term. We maintain our 2025 growth forecast of 3.5% for now, though downside risks are increasing.

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