S&P Raises Türkiye Inflation Forecast as Energy Shock Risks Intensify

S&P Global has revised up its inflation forecast for Türkiye, citing rising energy prices linked to the Iran conflict. The agency warned that Türkiye’s heavy reliance on energy imports leaves it highly vulnerable to oil and gas price shocks, potentially complicating the country’s ongoing disinflation efforts despite relatively resilient growth dynamics.

Inflation Forecast Revised Sharply Higher

S&P Global increased its forecast for Türkiye’s average inflation in 2026 to:

• 28.9%, up from a previous estimate of 23.4%

The upward revision was driven mainly by:

• Surging global energy prices
• Stronger-than-expected pass-through from January’s minimum wage increase

These factors are expected to keep inflation elevated despite tight monetary policy.

Energy Dependence Drives Vulnerability

According to the report, Türkiye’s macro outlook remains highly sensitive to external energy shocks:

• Net energy imports account for 3.5%–4.5% of GDP
• Oil and gas price fluctuations quickly feed into domestic inflation

This exposure makes Türkiye particularly vulnerable to geopolitical developments such as the ongoing Iran war.

Disinflation Effort Faces New Test

Since mid-2023, authorities have shifted toward tighter, more orthodox policies:

• Significant interest rate hikes
• Efforts to stabilize the currency and curb inflation

While inflation has declined from last year’s peak, the recent energy shock is now:

➡️ Reintroducing upward pressure on prices
➡️ Complicating the disinflation trajectory

Annual inflation stood at 31.5% in February, reflecting a gradual easing trend that may now face renewed risks.

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Growth Outlook Remains Relatively Resilient

Despite elevated inflation, S&P expects Türkiye’s growth to remain relatively stable:

• 2025 GDP growth: 3.6%
• 2026 GDP growth: 3.4%

Key supporting factors include:

• Recovery in the agricultural sector
• Positive wealth effects from rising gold prices
• Continued momentum in credit growth

External Balance Risks Increasing

Higher energy prices are also expected to weigh on Türkiye’s external accounts:

• Risk of a wider current account deficit
• Potential pressure on the Turkish lira
• Threats to FX stability

Energy supply structure highlights the exposure:

• Russia: 37% of gas imports
• Azerbaijan: 21%
• Iran: 14%

Baseline Scenario: Temporary Energy Shock

S&P’s baseline scenario assumes:

• The conflict remains contained and relatively short-lived
• Energy price pressures ease over time

Under this scenario:

• Brent crude averages $80 per barrel this year
• Falls to $65 by 2027

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Downside Risks Dominate Outlook

However, the agency stressed that risks are skewed to the downside.

A prolonged or intensified conflict could lead to:

• Higher inflation
• Rising interest rates
• Slower economic growth

Energy markets remain the main transmission channel, affecting:

• Transportation costs
• Fertilizer prices
• Industrial production

Broader Emerging Market Impact

S&P also warned that energy-importing emerging markets face increasing pressure:

• Tighter global financial conditions
• Investor shift toward safe-haven assets
• Currency depreciation risks

These dynamics could amplify inflation and borrowing costs across developing economies.