Bloomberg reports, Turkey has sharply revised its economy, signalling a policy shift that places price stability ahead of rapid growth.
The government’s new Medium-Term Program, unveiled on Sunday, projects gross domestic product (GDP) to expand 3.3% in 2025, lower than the 4% growth target set a year earlier.
The 2026 forecast has also been trimmed to 3.8%, compared with the previous 4.5%.
The adjustments come as policymakers grapple with inflation running more than six times above the official 5% target, forcing a balance between cooling prices and keeping the $1.4 trillion economy out of recession.
Growth expectations fall below long-term average
The revised 3.3% expansion for 2025 falls short of the average 5% pace Turkey has recorded over the past two decades.
While this estimate is slightly higher than the 3.5%, according to experts, it underscores a significant departure from earlier ambitions.
The government now appears willing to sacrifice some growth momentum in order to rein in inflation. This signals a change from policies that previously relied on strong consumer demand and cheap credit to drive expansion.
Turkey’s central bank began cutting interest rates in July, a move that is expected to continue gradually, but any easing will remain cautious to prevent inflationary pressure from worsening.
Inflation projected at 28.5% in 2025
The Medium-Term Program has made a major adjustment to inflation expectations. Consumer prices are now forecast to finish 2025 at 28.5%, compared with a 17.5% estimate made last year.
Looking further ahead, inflation is projected to decline to 16% in 2026, revised up from the earlier forecast of 9.7%.
The new guidance is broadly in line with the central bank’s August projections, which placed end-2025 inflation in the 25%–29% range.
While this indicates policymakers are aligned, it also highlights how persistent price growth has been despite tight monetary and fiscal measures.
Household expectations remain elevated, and spending behaviour has not slowed as much as authorities anticipated.
Rising budget deficit and reconstruction costs
Alongside growth and inflation revisions, Turkey has raised its forecast for the budget deficit. The shortfall is now expected to be 3.6% of GDP in 2025, half a percentage point higher than previously projected.
The widening gap reflects increased government spending, particularly on reconstruction efforts in the southeast after the devastating earthquakes of 2023.
Treasury and Finance Minister Mehmet Simsek has rolled out new taxes on households and businesses to meet higher fiscal demands.
While these measures aim to stabilise public finances, they also add pressure on consumers and firms already struggling with higher borrowing costs.
Businesses and households under strain
The government’s strategy to restore economic balance has left businesses and households facing difficult conditions. Companies report that high interest rates have significantly eroded profits, limiting investment capacity.
At the same time, households continue to expect elevated inflation, which sustains higher-than-expected consumption and complicates policymakers’ task of slowing demand.
This cycle illustrates the challenge for Ankara: easing monetary conditions too quickly could reignite price growth, but keeping borrowing costs high risks choking investment and fuelling discontent.
With growth targets scaled back and inflation forecasts raised, Turkey is entering a period where the policy focus is firmly on stabilisation, even if that means breaking with years of faster expansion.
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