OECD Lifts Türkiye Growth Forecast but Warns Inflation Risks Remain

Summary:

The OECD upgraded Türkiye’s growth outlook for 2025–2027, citing resilient domestic demand and improving macroeconomic conditions. However, the organisation warned that inflation risks remain tilted to the upside and stressed that monetary policy must stay tight until disinflation becomes firmly entrenched. The updated report comes as global growth proves more durable than expected, even as financial and geopolitical risks intensify.

Türkiye Growth Upgraded; Inflation Outlook Still Challenging

The OECD has raised its forecast for Türkiye’s economic growth, projecting GDP expansion of 3.6% in 2025, up from 3.2% in its September outlook. Growth is expected to reach 3.4% in 2026 and accelerate to 4% in 2027, driven by resilient consumption, improving confidence and gradually easing financial conditions.

Despite the upward revision, the OECD warned that inflation pressures remain persistent. Headline inflation is projected to decline gradually but will still average 34.5% in 2025, 20.8% in 2026, and 11.7% in 2027 — higher than previously forecast.

While annual inflation has fallen from the May 2024 peak of 75% to around 33% in October, the report stresses that risks are “tilted to the upside,” citing strong services inflation, elevated pricing behaviour and global commodity volatility.

Monetary Easing to Continue, But Cautiously

The OECD expects the Central Bank of the Republic of Türkiye (CBRT) to continue its gradual easing cycle, projecting the policy rate to fall to 25% by end-2026 and 17% by end-2027.

However, it emphasises that monetary conditions must remain restrictive until inflation declines “in a lasting and credible manner.”

Since December 2024, the CBRT has cut rates by 650 basis points to 39.5%, but worsening price dynamics prompted the Bank to slow its pace of easing. The OECD anticipates further rate cuts only if disinflation continues steadily.

On fiscal policy, Türkiye’s budget deficit is expected to narrow from 3.1% of GDP in 2025 to 2.8% in 2027, helped by consolidation efforts and improved revenue performance.

The report also notes that the 15% US tariff on imports from Türkiye is likely to have “only a limited impact,” while weak European demand remains a more significant risk for Turkish exporters.

Global Growth Holds Up Despite Tariffs and Geopolitical Risks

The OECD said the world economy has been “surprisingly durable,” maintaining its forecast of 3.2% global growth in 2025, easing to 2.9% in 2026, before rebounding to 3.1% in 2027.

Softening activity is expected early next year as higher effective tariffs, geopolitical tensions and declining investment weigh on trade. Growth is seen accelerating again in late 2026 as financial conditions improve and inflation drops.

Emerging Asian economies remain the primary engine of global expansion.

Inflation Expected to Return to Target by 2027

Global headline inflation is projected to ease from 3.4% in 2025 to 2.8% in 2026 and 2.5% in 2027, bringing most major economies back toward central bank targets.

In the United States, inflation is expected to rise temporarily in mid-2026 due to tariff pass-through before easing.

In China and several emerging markets, inflation is likely to edge higher as excess industrial capacity narrows.

OECD Warns of Mounting Downside Risks

Despite improved resilience, the OECD highlighted a series of threats that could derail the outlook:

• Rising trade barriers around strategic industries

• Sharp repricing in financial markets, particularly in AI-driven asset valuations

• Stress among non-bank financial institutions

• Volatile crypto-asset markets

• Lingering fiscal vulnerabilities, which may push long-term yields higher

The organisation warned that these risks could tighten global financial conditions and weigh heavily on growth.

Upgrades Across Major Economies

The OECD also revised up its forecasts for several major economies:

• United States: 2% growth in 2025 (up from 1.8%)

• Eurozone: 1.3% growth in 2025 (up from 1.2%)

• China: 5% growth in 2025 (up from 4.9%)

• Japan: 1.3% growth in 2025 (up from 1.1%)

• India: 6.7% in 2025 (up from 6.5%)

The main driver of the US upgrade is strong AI-related investment and resilient domestic demand.