Turkey Economic Forecast

Annual economic growth eased in Q2, dented by weaker private and public spending growth and a sharper decline in exports. On the flip side, investment picked up thanks to sturdier construction activity following Q1’s earthquakes. Shifting to the current quarter, available data suggests that momentum is cooling further. The manufacturing PMI was entrenched in contractionary terrain in July and August. Moreover, inflation turned upward in July after falling for eight consecutive months, which deepened pessimism among consumers in July–August. Meanwhile, a sharp interest rate hike in August is likely weighing on activity. In other news, in late August, the country deepened its ties with several Middle Eastern countries: It signed an agreement on mining with Saudi Arabia and obtained additional investment in logistics and infrastructure from the UAE.

In July, inflation rose for the first time since October 2022, coming in at 47.8% (June: 38.2%). The increase was driven by stronger price pressures for food and transportation. Inflation is set to pick up in the coming quarters due to lira weakness, increased pensions and a higher minimum wage. That said, aggressive interest rate hikes will limit the surge in prices.