Atilla Yesilada: Turkish economy in 2026

Where are we in end- 2025?

Preliminary data following an economy that expanded at a legendary q/q pace of 1.1% in Q3 2025 indicate that momentum did not slow in December either. A contraction in agriculture caused by meteorological conditions is masking the true growth rate. Economic activity may be closing the year at a 4.5–5% growth rate. For this year, my forecasts are around 3.75% growth and roughly 31% CPI inflation.

So, can we maintain this pace next year? No. 2026 will be the year of “mediocrasy.” There is another defining feature of 2026: it will be the final year in which the Economic Stabilisation Programme, implemented under the command of Mehmet Şimşek and Fatih Karahan, converges toward the Medium-Term Programme (OVP) targets. Wherever the economy stands at the end of 2026, it will maintain that shape and tempo until 4-5 months before the elections.

For those who do not have time for a long read, let me summarise my 2026 forecasts, jointly produced with the İstanbulAnalytics / Global Source Partners Türkiye team:

• CBRT policy rate at end-2026: 32%

• Budget deficit / GDP (end-2026): 3.2%

• GDP growth: 3%

• End-2026 CPI: 25%

• Current account deficit / GDP: 2%, financing will not be a problem

• Employment: Expanding by around 1% annually since the pandemic; this slows to 0.5% in 2026

• Corporate bankruptcies and concordat filings: 10,000 this year, rising to 20,000 next year

• Expected increases in minimum wage and pensions: 28%

Most readers will say: “Anyone can pull numbers out of thin air. Why will growth slow? How will inflation fall? Explain it.” And they would be right.

Growth is slowing

Since the Covid pandemic, 90% of growth has come from private consumption. After the 2023 elections, when inflation surged, households brought consumption forward with the concern that “prices will be even higher next month.”  Turkstat inflation fell from the 70% range to around 30%, but remained much lower than what people on the street actually felt, reinforcing this trend.

This year again, with wage increases remaining below realised inflation and the gap between perceived and recorded inflation narrowing, the propensity to consume will decline.

Monetary policy is not tight enough to bring CPI down to 16%, but when assessed together with credit restrictions, it still operates in a growth-suppressing direction. Measuring the net contribution of fiscal policy to the economy is not easy. The theoretical gauge is the primary balance. If it is positive, it means the government is saving part of the taxes it collects, effectively extracting income from the economy. I expect the primary balance to post a small surplus this year.

Türkiye is somewhat different. Interest payments return to consumption within 1–2 years rather than remaining as savings until retirement. The trillions paid in interest during 2024–2025 could turn into spending this year, especially if the CBRT acts aggressively on monetary easing.

Growth could still surprise on the upside in 2026, as it usually does because of parallel economy, drug revenues and virtual gambling profits. I do not expect any kind of FX crisis until the winter of 2026. Such a scenario would be inflationary and recessionary.

CPI will not fall below 25%

Why? Because we have effectively set aside inflation-fighting tools other than suppressing USD/TRY. As seen in the new tax package, Şimşek is trying to raise tax revenues through various individual legal clauses and regulatory changes, but most of these are reversed by Erdoğan. As noted above, in 2026 fiscal policy will be mildly supportive of economic activity.

In addition to the budget, the 500,000-unit social housing project could inject income into the economy comparable to post-earthquake housing construction.

Most importantly, household inflation expectations are not breaking. When wages and salaries are  to be raised by 28% at the start of the year, prices will rise by the same amount. Food inflation has become structural. Even if climate conditions improve in 2026, food production will remain well below demand, creating inflationary resistance. I do not expect any meaningful improvement in rents or services either.

Relatively high interest rates and tight credit access will slow demand. I expect USD/TRY to rise by no more than 20% in 2026, which is disinflationary. Ultimately, household consumption will surge in the first three months as year-end raises are quickly spent, then gradually contract over the remainder of the year as pockets run empty.

A positive inflation surprise would be Brent falling to $50 per barrel; a negative one would be the CBRT cutting rates too early and too fast.

Current account: No problem

Despite the real appreciation of the lira over the past three years, the current account has not blown out. Excluding energy and gold—which reflect domestic demand—the current account still posts a surplus. A 20% decline in Brent is another factor preventing a blowout.

The second factor is worsening income distribution. The wealthy still consume imported cars and food and travel abroad, (but there is only so many conspicious consumption items one can buy),  while the majority of the population is forced to rely on cheaper but lower-quality domestic consumption.

Even though the lira is expensive, 2025 will be a record year for tourist arrivals and gross tourism revenue. Imports have accelerated in recent months, but in dollar terms exports are growing around 3% annually, in line with the global average.

In 2026, the trade deficit may deteriorate somewhat and tourism revenues could shrink by around 5% year-on-year. That is why my 2026 current account deficit forecast is 2% of GDP.

This year, Şimşek secured $16.5 billion in external financing for earthquake spending and urban transformation. According to October balance-of-payments data, the FX refinancing ratio of banks and non-financial corporates is around 160%. Next year, the Fed will cut rates once or twice. Even if the BoJ hikes, global financial conditions will remain loose. The CBRT’s usable reserves are at least $150 billion, which further facilitates external borrowing.

The biggest positive surprises for 2026 would be Brent falling to $50 and trade with Syria. Turkish contractors have already secured $12 billion in projects. I believe Syrian Kurds will be persuaded to integrate with the central government. If al-Sharaa consolidates control across the country, more financial aid will flow into Syria, and half of that will return to us as exports.

I expect gold prices to remain broadly flat in 2026. If, as many forecasts suggest, gold rises to $5,000 per ounce or higher, gold imports would worsen the current account, but the impact would be limited.

In 2026, economic activity will slow somewhat, and rate cuts will come later and more gradually than expected. Even if demand from the EU strengthens slightly, the strong lira policy continues to erode competitiveness in external markets. China is also dumping goods it cannot sell to the US and EU into our domestic market, shaking up domestic manufacturing. New-year minimum  wage adjustments will significantly raise costs.

In short, the private sector’s hardship will continue in 2026. Around 90% of small and medium-sized companies will be forced into concordat (debt protection or Chapter 11 filings), most ending in bankruptcy. My estimate is around 20,000 concordat filings. However, given that Türkiye has over 3 million registered commercial entities, 20,000 is a drop in the bucket. I do not foresee a broad default wave or a factory-closure crisis in the private sector, nor even in labour-intensive, low-margin sectors like textiles. Those unable to adapt to new economic conditions shut down; more efficient firms replace them. That is the whole story.

One of Türkiye’s two biggest problems is broad-based, structural unemployment, now stabilised at 25–30% of the employable workforce. It will rise slightly in 2026. Corporate operations—and the rapidly spreading patronage from top to bottom—are deeply frightening the private sector. I do not expect much private-sector fixed investment next year. Without new factories, without high-quality foreign capital, and while companies are continually being placed under trusteeship, businesses cannot grow.

Partial contraction in economic activity and mediocre tourism performance next year will also weigh on employment. The headline unemployment rate could rise to 10%.

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