Turkey fortifies macro-financial resilience as foreign reserves reach $174.4 billion, according to Finance Minister.
In a positive turn for Turkey's economy, the country is forecasted to achieve a significant milestone, with a GDP of approximately $1.4 trillion by the end of 2025. This growth is primarily driven by expanding exports and private consumption.
The economy showed resilience even in the face of challenges, growing by around 2% in Q1 2025. The International Monetary Fund (IMF) and Fitch Ratings predict an overall growth of around 3% for 2025, with a slight increase to about 3.3-3.5% in 2026.
One of the key factors contributing to this growth is the significant increase in exports, which reached $156.4 billion in the first seven months of 2025, marking a 5.2% year-on-year growth. Private consumption remains a primary growth driver, contributing strongly to GDP growth.
Inflation, while still high, is projected to decline. It is expected to fall from around 28% at the end of 2025 to 21%-24% in 2026. The Central Bank of Turkey is actively cutting interest rates to support economic activity, contributing to this decline in inflation.
However, the Turkish lira has depreciated notably, contributing to inflation and market volatility. The central bank is cautiously easing monetary policy while managing inflation expectations.
Political developments, such as the detention of Istanbul’s mayor in March 2025 and ensuing protests, caused short-term market turbulence. Yet, the economy has shown resilience and continued its path of recovery.
In other positive developments, the Currency-Protected Deposit (KKM) system is shrinking rapidly. The KKM stock fell to ₺478 billion as of August 2025 and is expected to be fully removed by year-end. This is a significant decrease from its peak of ₺3.4 trillion in 2023.
The share of Turkish Lira (TL) deposits in Turkey has also risen, currently accounting for 59.6% of total deposits. The 10-year dollar-denominated bond yield in Turkey fell below 7%, indicating a strengthening of financial markets.
Turkey's central bank's total reserves reached a record $174.4 billion in the week ending Aug. 8, with increases in both foreign currency and gold reserves. Net reserves (excluding swaps) reached $49.6 billion.
The government's medium-term economic program aims to strengthen price stability and resilience to external shocks, targeting single-digit inflation by 2027 through coordinated monetary, fiscal, and income policies. Turkey's Finance Minister Mehmet Simsek stated that the country will continue to implement programs to increase economic resilience and pursue disinflation targets.
Overall, despite a challenging environment including high inflation, political concerns, and currency depreciation, Turkey’s economy is on a path of recovery and moderate growth. The outlook for 2026 is cautiously optimistic with expectations of continued GDP growth acceleration and inflation reduction.
- Despite the Turkish lira's significant depreciation, which has contributed to inflation and market volatility, the Central Bank of Turkey is carefully easing monetary policy while managing inflation expectations.
- The Turkish government's medium-term economic program aims to strengthen price stability and resilience to external shocks, targeting single-digit inflation by 2027 through coordinated monetary, fiscal, and income policies.
- In contrast to the high inflation rate of 28% at the end of 2025, it is projected to decline, falling to 21-24% in 2026, thanks in part to the active interest rate cuts implemented by the Central Bank of Turkey to support economic activity.
