Anticipated Deceleration in Turkish Economic Expansion: Survey Predicts 2.8% Growth Rate in 2025
In the midst of ongoing economic challenges, Turkey's economy is experiencing a slowdown. The country's GDP grew by just 2% in Q1 2025, a significant drop from the 3% growth seen in 2024 and the 5% growth in 2023. This slow growth is heavily influenced by a post-earthquake construction boom, while key sectors like industry and agriculture are contracting, indicating stagnation overall.
Despite an official unemployment rate of 8.4%, the broader labor underutilization rate stands at 32.2%, reflecting hidden unemployment and underemployment issues.
Inflation, a persistent problem for Turkey, has eased slightly. In June 2025, inflation eased to 35.05%, marking a 13th consecutive month of decline. However, it is expected to remain well above the central bank's targets. According to a Reuters poll conducted between July 18 and 23, 2025, inflation is forecasted to fall to 30% by the end of 2025 and to 21% in 2026.
The central bank, in an attempt to control inflation, deployed liquidity measures to push overnight funding rates above the policy rate in April 2025. The Reuters poll also suggests that the policy rate is expected to fall to 41% by the end of September 2025 and to 36% by the end of the year.
The ongoing concerns about pricing pressures and the effectiveness of current policy measures are highlighted by the persistent gap between the central bank's projections and the expectations of economists. The OECD applauded Turkey's growth, stating that 'headwinds won't derail disinflation.'
Turkey's defense spending has also increased substantially in 2025, affecting the fiscal balance. With increased defense commitments under NATO, inflationary pressures and macroeconomic balancing remain critical concerns.
The World Bank upgraded its estimate for Turkey's 2025 growth by 0.5 percentage points to 3.1%. Economists anticipate a rate cut of at least 250 basis points at the upcoming policy meeting on Thursday. The International Monetary Fund (IMF) raised its 2025 growth forecast for Turkey from 2.6% to 2.7%.
Turkey ranks as the 16th-largest global economy by nominal GDP and continues to develop various sectors such as tourism, manufacturing, and defense exports. However, the country faces significant near-term challenges including economic stagnation outside construction, labor market slack, inflation risks, and pressure to increase defense spending further.
For precise figures on inflation and the central bank policy rate as of July 2025, consult the latest releases from the Central Bank of the Republic of Turkey or trusted financial news sources, as the provided search results do not include these details.
[1] Source: Trading Economics [2] Source: World Bank [3] Source: Reuters
- The government of Turkiye faces the ongoing challenge of balancing their fiscal budget due to increased defense spending and inflationary pressures.
- With inflation easing slightly but still far above the central bank's targets, investing in the Turkish economy may present risks, despite the country's potential for growth in sectors like tourism, manufacturing, and defense exports.3.Businesses and investors should closely monitor the central bank's policy decisions, as it is expected to lower the policy rate in the near future in an effort to control inflation.
- Although Turkiye's economy is showing sluggish growth, as indicated by the 2% GDP growth in Q1 2025 compared to the previous years, concerns about unemployment, stagnant key sectors, and inflation persist.
- Istanbul and other regions of Turkiye continue to face economic challenges, including high unemployment rates, labor underutilization issues, and contracting sectors, making the city and country as a whole less attractive for potential business opportunities.
