COMMENTARY: Turkey’s October 2025 Economic Outlook – A Descent into Malaise-flation
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By Atilla Yeşilada
Important disclosure: I have used AI to analyse the data
The October 2025 confidence indices—encompassing the Real Sector Confidence Index (RKGE), Sectoral Confidence Indices (HPTIGE), and Consumer Confidence—reveal an economy gripped by a fundamental disequilibrium. The central tension is the stark and dangerous divergence between current economic reality and future expectations (hope), a defining characteristic of the Turkish economy today.
The Gloomy Structural Backdrop
Before dissecting the October data, we must acknowledge the broader structural currents shaping Turkey’s fate. The economy is no longer primarily driven by government policy cycles but by deepening, structural rot. Indicators such as corporate breakdowns and a stubborn, broad-based unemployment rate that refuses to dip below the 28% mark illustrate this point. The future, viewed through this structural lens, is undeniably dark.
In response, private capital is either decelerating fixed capital investments or actively migrating to safer jurisdictions. Financial capital, too, is accelerating the shift of accumulated wealth abroad. The most damaging trend is the continued emigration of high-quality human capital. In this environment, achieving even 3% GDP growth would constitute a major success. Tellingly, the October confidence data aligns perfectly with this 3% cruising speed.
The Paradox of False Optimism
A peculiar paradox persists in Turkey: while confidence in the country’s political future continually falls in political opinion polls, expectations in economic surveys compiled by the Turkish Statistical Institute (TÜİK) remain elevated. A historical review of TÜİK’s data shows that forward-looking expectations are perennially exaggerated, implying that both individuals and corporations are consistently making decisions based on incorrect future assumptions.
Furthermore, while the Current Account Deficit remains low relative to GDP—suggesting external financing issues would ease, especially in a hypothetical scenario where the U.S. Federal Reserve cuts rates—the domestic inflation outlook is suddenly worsening. Recent data from the BETAM Household Inflation Expectations Survey confirms this: 12-month inflation expectations have resumed an upward trend month-over-month.
Analysis of October Confidence Data
1. Sectoral Divergence: Hope vs. Collapse
The seasonally adjusted Real Sector Confidence Index (RKGE – Manufacturing) rose by 1.2 points to 102.0, its highest level since March. This looks like a superficial success story. Crucially, however, the engine of this increase is not current demand or orders. Instead, the main components driving the index higher are expectations for employment and fixed capital investment over the next 12 months. The real sector is acknowledging the current cash flow difficulties but maintains a “leap of faith” into the year ahead. This is not a rational business decision; it is an act of defiance fueled by hope.
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Adjacent to this fragile optimism, two structurally vulnerable sectors are sending conflicting signals:
- The Construction Wreckage: The sector bearing the heaviest cost of monetary tightening is Construction. The Construction Confidence Index plunged by a sharp 5.3% in October, landing at 83.7, its lowest level since May 2020. The steep declines in registered orders and employment expectations confirm that high interest rates and the resulting credit squeeze have effectively brought the sector to a standstill. From an investment perspective, this proves that the optimism observed in the RKGE is highly selective and extremely brittle.
- Retail Velocity and Consumer Reflex: On the other hand, the Retail Trade Confidence Index surged by 3.7% to 113.2, confirming the surprising resilience of domestic demand. This resilience is directly tied to consumer psychology.
2. Consumer Confidence: Propped Up by “Hope”
While overall consumer confidence retreated slightly to 83.3 in October, its composition highlights the deep disconnect. The familiar divergence between past reality and future hope persists: present-time readings regarding the household financial situation remain well below 60, while future expectations hover stubbornly around 80. The public feels that current economic conditions are quite poor, but they maintain a strong, yet potentially unfounded, belief that the situation will improve in the future. This “living on expectations” is a unique psychological barrier in the Turkish economy, and its sustainability is highly questionable.
3. Consumption Correlation Normalization
One of the most critical signals in the data set is the beginning of a normalization in the relationship between consumer confidence and actual consumption (as a percentage of GDP). For years, this correlation broke down: confidence sank, yet consumption exploded, driven by deeply negative real interest rates and the ingrained urge to hedge against runaway inflation (“buy now to preserve value”).
However, the trend is reversing over the past few quarters: consumer confidence is slowly recovering from depressed levels, while actual consumption has begun to stagnate. This normalization suggests the “flight from currency” consumption dynamic is finally fading, indicating that the delayed effects of tight monetary policy are finally being felt in domestic demand, slowing the economy’s primary engine.
Inflation Expectations Remain Rigid
The BETAM survey confirms that inflation expectations remain stubbornly elevated. The average one-year-ahead inflation expectation rose to 61% (a 6.9 percentage point increase month-over-month).
Specific survey findings underline this rigidity:
- Average 1-Year Expectation: 61% (a significant jump).
- Segment Highest Expectation: 25-34 age group (65.4%) and students (68.2%).
- Segment Lowest Expectation: Wage earners (52%).
These figures demonstrate that inflation is becoming deeply embedded in the public psyche, posing a major threat to any disinflation efforts.
Conclusion: Türkiye Has Entered Malaise-flation
The October 2025 data shows the Turkish economy is at a crossroads: credit- and finance-sensitive sectors (Construction) are in sharp decline, while the manufacturing and retail wings are putting up a final stand, supported by future expectations and inflationary hedging. The normalizing consumer behavior suggests this resistance will eventually break.
Crucially, the oft-repeated claim in the Turkish press about the “collapse of the industry” is unfounded, with the exception of the Construction sector.
While price stability is nominally the public sector’s priority, the concern over protecting growth is preventing the monetary policy from remaining sufficiently tight. The government’s new tax law, projected to yield an additional 200 billion TRY over two years, is a literal drop in the ocean compared to the 70 trillion TRY economy. Under these conditions, inflation is likely to remain flat in 2026, and growth will settle around 3%.
Türkiye has entered a long-term period of Malaise-flation: persistent high inflation coupled with mediocre growth.
