Turkey: Economic recovery loses momentum in the first quarter
GDP growth slows: GDP growth waned to 1.0% on a seasonally adjusted quarter-on-quarter basis in the first quarter from 1.7% in the fourth quarter of last year. The reading marked the second consecutive expansion after the economy entered a shallow technical recession in Q2–Q3 2024, suggesting a still-strong albeit slowing recovery.
On an annual basis, economic growth lost steam, cooling to 2.0% in Q1, following the previous quarter’s 3.0% growth and marking the worst reading since Q2 2020.
Household spending and investment shrink: Domestically, private consumption contracted by 0.4% in sequential terms in Q1, marking the worst result since Q2 2024 (Q4 2024: +4.3% s.a. qoq). This swing came amid depleted real wages and likely reflected payback from front-loaded spending at the end of 2024 amid promotional campaigns and concerns over price adjustments. In addition, fixed investment contracted 1.4% in Q1, also logging the worst result since Q2 2024 (Q4 2024: +3.9% s.a. qoq). On the flip side, public spending accelerated to a 2.1% expansion in Q1 (Q4 2024: +0.2% s.a. qoq).
On the external front, exports of goods and services rebounded, growing 3.9% seasonally adjusted quarter on quarter in Q1, which marked the best reading since Q3 2023 (Q4 2024: -3.3% s.a. qoq). This sharp improvement likely stemmed from front-loading efforts ahead of greater U.S. tariffs. Conversely, imports of goods and services deteriorated, contracting 1.1% in Q1 (Q4 2024: +5.2% s.a. qoq).
GDP growth to soften ahead: Our panel expects GDP to cool further in Q2 as financial market turmoil, recent monetary policy tightening and U.S. tariffs hamper momentum. Over 2025 as a whole, growth is set to slow relative to 2024 and remain weak by historical standards. Lower real wages and a higher unemployment rate should dent household spending. Moreover, exports and investment are seen cooling amid heightened global trade tensions. Deteriorating investor sentiment and rising political tensions are downside risks.
Panelist insight: ING’s Muhammet Mercan commented:
“Early indicators for the second quarter point to emerging signs of weakness following the volatility experienced in March. […] Additionally, global economic challenges – especially those arising from US tariffs – could negatively affect Turkey’s export performance. The anticipated slowdown in economic growth across Europe and the US may create additional headwinds for exports.”