Türkiye is heading into 2026 with markedly lower inflation and continued economic expansion, although persistent financial vulnerabilities, political uncertainty, and pressure on the national currency continue to cloud the country’s economic outlook, Xinhua reported.
Data released by the Turkish Statistical Institute indicate that the economy expanded by 3.7 percent year on year in the third quarter of 2025, extending a multi-year growth trend.
Growth for the second quarter was later revised upward to nearly 4.9 percent, underscoring the economy’s underlying momentum.
At the same time, inflation has cooled substantially. Annual consumer price inflation fell from a peak of roughly 75 percent in May 2024 to about 31.07 percent in November 2025, marking its lowest level in nearly four years.
The decline followed a phase of stringent monetary tightening. After reaching around 50 percent in late 2024, the central bank’s policy interest rate was gradually reduced to approximately 38 percent by December 2025 as inflationary pressures eased.
Despite the improvement, Senol Babuscu, an academic at Baskent University in Ankara, cautioned that inflation remains elevated by global standards.
He told Xinhua that maintaining confidence would require sustained monetary discipline and close coordination with fiscal policy, particularly amid political sensitivities.
Economic policy adjustments under Treasury and Finance Minister Mehmet Simsek and Central Bank Governor Fatih Karahan have drawn a measured response from international investors.
In July 2025, Moody’s upgraded Türkiye’s sovereign credit rating, pointing to improved policy consistency and narrowing macroeconomic imbalances, although the country remains below investment grade at major rating agencies.
Financial markets, however, continue to reflect underlying fragility. The BIST 100 stock index experienced pronounced volatility in 2025, hitting record levels before undergoing sharp corrections driven in part by domestic political developments.
Legal cases involving prominent opposition figures periodically weighed on investor sentiment.
Istanbul-based economist Atilla Yesilada told Xinhua that while Türkiye’s economy is more resilient than in previous years, it remains exposed to political shocks.
He noted that market movements in 2025 showed how quickly confidence can weaken if investors perceive heightened political risk or a shift away from orthodox economic policies.
The weakening of the Turkish lira remains another challenge. By late December, the currency was trading at around 42–43 to the U.S. dollar, compared with just over 35 at the start of 2025.
The depreciation complicates efforts to control inflation and increases the burden of servicing foreign-currency debt.
On the positive side, foreign direct investment showed strong growth.
According to the International Investors Association, FDI inflows rose by 35 percent year on year during the first 10 months of 2025, reaching 11.6 billion U.S. dollars.
Analysts say that as Türkiye moves into 2026 with improved fundamentals, sustaining progress will depend on consistent policy implementation and careful management of both domestic political dynamics and global financial risks.
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