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EU Predicts Slower Growth for Türkiye in 2025

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The European Commission anticipates that Türkiye’s economic growth will decelerate in 2025, citing the negative effects of domestic political instability on financial markets, despite the government’s ongoing efforts to maintain financial stability.

In its latest report titled “Spring 2025 Economic Forecast: Moderate Growth in a Global Uncertainty Landscape,” the Commission projected Türkiye’s GDP growth to decline from 3.2% in 2024 to 2.8% in 2025, before rebounding to 3.5% in 2026.

Financial Instability Overshadows Rebalancing Efforts

The report notes that volatile financial markets, triggered by domestic political tensions, are expected to weigh on Türkiye’s short-term economic momentum. Despite tight fiscal policies aimed at combating inflation, these factors are likely to dampen investor confidence and constrain private sector investment.

“While household consumption is expected to grow by a moderate 3.5%, supported by improved financial outlooks, investment activity may slow due to high real interest rates and the conclusion of post-earthquake reconstruction,” the report said.

External Demand Weakens, Trade Contribution Shrinks

The Commission also highlighted challenges in the external sector:

  • The Turkish lira’s real appreciation and sluggish global demand are set to limit export growth.

  • Gains from trade diversion caused by rising U.S. tariffs are expected to remain marginal.

  • Imports are forecast to gradually close the export gap, with net exports contributing little to growth through 2026.

However, the report stated that low international energy prices should help keep the current account deficit in check.

Labor Market Remains Resilient, But Vulnerable

Despite a slowdown in 2024, Türkiye’s labor market remained surprisingly strong. Yet, the Commission predicts a moderation in job creation in 2025, with unemployment expected to rise temporarily before stabilizing.

“Labor shortages will likely persist, which may limit wage-related cost pressures despite elevated unemployment,” it noted.

Türkiye Better Positioned Than Previous Years, But Risks Persist

The report underscores Türkiye’s improved macroeconomic fundamentals compared to recent years:

  • A better policy mix

  • Reduced economic imbalances

  • Building up of financial buffers

Still, managing the ongoing economic rebalancing process will remain challenging, especially as geopolitical and internal risks remain elevated.

“The risk environment worsened in early 2025, but Türkiye is more resilient now than in previous episodes,” the Commission concluded.

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