Türkiye | Smooth landing signals so far

Summary

Hard data realizations so far confirm the slowdown in activity in 2Q25 while domestic demand conditions continue to moderate. We maintain our 2025 GDP growth forecast of 3.5% despite the downside risks, assuming an effective policy mix targeting a smooth adjustment.

Key points

• Key points:
• GDP growth is slowing down in 2Q25 driven by the ongoing correction in domestic demand amid tightening financial conditions, and weak external demand. Hard data realizations in April confirmed a broad-based deterioration across sectors, while leading indicators—particularly confidence indices—for May and June suggest that the slowdown would become more pronounced in 2Q25. The output gap could deepen further into negative in 2Q25, which helps disinflation outlook also implied by the CBRT in the latest MPC decision.
• On the domestic demand side, private consumption stays weak and we observe a recovery in investment expenditures, with leading indicators generally pointing to a continued correction. The weak external demand conditions have caused exports to remain subdued in 2Q25 while imports continue to normalize on weaker domestic demand. However, net exports may still contribute negatively to growth on a quarterly basis.
• Our monthly GDP indicator nowcasts a quarter on quarter growth of 0-0.5% in 2Q25, while annual growth could accelerate to around 4.5% thanks to favorable calendar day impact.
• Tighter financial conditions, ongoing geopolitical tension, and uncertainty on global protectionist policies pose downside risks to near term growth outlook. On the other hand, expected support for growth in EU through defense and infrastructure spending, likelihood of additional quasi fiscal policies such as the extension of Credit Guarantee Fund (CGF) limits, and the expected monetary easing in 2H25 may serve as supportive factors. Therefore, we maintain our 2025 growth forecast at 3.5%, while acknowledging the presence of downside risks.

Geographies

Topics

Tags