Fitch Warns of 2026 Risk: Türkiye Faces “Aggressive Easing” Scenario Amid Political Uncertainty

Summary:

Fitch Ratings cautions that Central and Eastern European (CEE) sovereigns are heading into 2026 under deteriorating credit conditions. In its new “2026 Eastern Europe Sovereign Outlook” report, the agency says rising fiscal deficits, public debt accumulation, domestic political uncertainty and elevated geopolitical risks are weakening resilience across the region. While Türkiye’s policy balance has helped reduce inflation and rebuild external buffers, Fitch warns that a shift toward rapid monetary loosening ahead of elections could heighten market volatility.

Credit outlook weakens across Eastern Europe

According to the report, most CEE economies enter 2026 facing difficult trade-offs between maintaining fiscal discipline and supporting growth.

Key regional risks highlighted:

• Widening budget deficits

• Rising public borrowing costs

• Need for stricter fiscal consolidation

• Persistent geopolitical tensions and policy uncertainty

Fitch notes that an improvement in EU fund utilisation and stronger growth from trade partners could provide some support, but U.S. trade policy unpredictability and softer investor sentiment remain downside risks.

Türkiye: Inflation cools, buffers stronger — but policy risks remain

Fitch acknowledges progress in Türkiye’s macro adjustments, including disinflation trends and improved external financing capacity. However, the agency stresses that political dynamics will remain a decisive factor for markets heading into 2026.

Risk flagged: a possible return to aggressive rate cuts or looser policy ahead of elections could destabilise markets and weaken credibility.

The agency warns that sudden reversals in policy direction — particularly if driven by political pressure — could trigger exchange rate volatility, portfolio outflows and higher funding costs.

Political uncertainty still elevated

The report points to rising political polarisation, coalition frictions and institutional tensions as sources of structural uncertainty across the region. Fitch argues that this will place pressure on:

• fiscal policy and spending frameworks

• medium-term economic planning

• sovereign credit profiles

Geopolitical risk also remains a prominent overhang. With the war in Ukraine ongoing, doubts over U.S. commitment to NATO, and increased Russian hybrid activities targeting neighbouring countries, the security environment remains strained.

Bottom line

• CEE enters 2026 with weakening credit fundamentals

• Türkiye’s disinflation progress acknowledged, external buffers improved

• Key risk for Türkiye: potential early policy easing or political shocks

• Regional outlook clouded by war, U.S. policy shifts and fragile investor sentiment

Fitch’s message is clear: maintaining policy discipline will be critical for Türkiye to protect recent gains and avoid financial volatility in a high-risk global environment.

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