Turkiye Cuts Growth Forecasts in Sign Inflation Is Priority

Turkiye trimmed its forecasts for gross domestic product, signalling the government is prioritising price stability over rapid growth.

The government’s new Medium-Term Program unveiled late Sunday sees the economy expanding 3.3% this year and 3.8% next, down from previous projections of 4% and 4.5%.

The estimate for next year is above the 3.5% median estimate in a Bloomberg survey of economists but remains well below Turkiye’s average pace of about 5% over the past two decades. That suggests the finance ministry’s focus is on lowering inflation, which is running at over six times the official target of 5%.

Authorities will gradually increase the potential for growth through structural transformation while bringing inflation down to single-digit levels, Vice-President Cevdet Yilmaz said in a press conference as he presented the program.

Turkiye has sustained GDP increases “without creating inflationary pressures,” he added, noting that growth has been below potential, keeping the economy from overheating.

The cautious approach will likely require a gradual easing of monetary conditions by the nation’s central bank, which resumed cutting interest rates in July. Inflation is projected to finish the year at 28.5%, slowing to 16% in 2026, a sharp revision from last year’s estimates. The central bank’s August guidance estimated end-2025 inflation at a range of 25%-29%.

Containing inflation without pushing the $1.4tn economy into a recession has proved to be a challenging task for Turkiye. Businesses complain that higher borrowing costs have eaten into their profits, while households still expect inflation to remain at elevated levels and continue to spend at a higher pace than expected.

Turkiye’s national income is projected to exceed $1.5tn by the end of 2025 for the first time, with per-capita income rising above $17,000.

The government also raised its estimated budget deficit, expecting the shortfall to be 3.6% of GDP, half of a percentage point higher than its previous projection. Treasury and Finance Minister Mehmet Simsek has introduced new taxes on households and businesses to keep up with higher spending, which is partly driven by a massive reconstruction campaign in the country’s southeast after two devastating earthquakes in early 2023.

Simsek said the total spending in provinces affected by 2023 earthquakes was $90bn.