Europe Sees Steady Turkish Growth Despite Inflation

Turkey’s economic story in 2025 remains one of resilience layered atop structural challenge. On 18 November 2025, the European Commission released a new outlook forecasting economic growth of around 3.4% in both 2025 and 2026, rising toward 4% by 2027. The projections come despite Turkey’s tight monetary stance, which has kept interest rates elevated to curb inflation that has lingered above targeted levels for years.

The growth profile reflects the unique composition of Turkey’s economy. Domestic demand—particularly private consumption—remains the central engine, supported by a young demographic base, rising urbanisation, and sustained government investment in infrastructure and housing. Even as high borrowing costs slow credit expansion, household spending has shown surprising stability, suggesting that Turkey’s informal labour market, family transfers, and cash-based economic segments continue to cushion households during tightening cycles.

A major policy challenge is inflation. Despite improvements, price pressures remain elevated, driven by supply-chain constraints, imported energy costs, and exchange-rate pass-through. The central bank’s restrictions on liquidity and tighter financial conditions have helped anchor expectations, but inflation is projected to normalise only gradually. This underscores the delicate balance between sustaining growth and preserving financial stability—a challenge that has defined Turkey’s economic narrative over the last decade.

The European Commission also highlights the ongoing role of exports. Turkey’s diversified manufacturing base—automotive parts, textiles, machinery, electronics—continues to benefit from supply-chain diversification away from East Asia. European buyers, seeking shorter lead times and near-shoring options, are increasingly using Turkey as a production base. But geopolitical risks and global trade uncertainty remain headwinds.

Structural reforms continue to shape the medium-term outlook. Turkey’s push for renewable-energy expansion, digital-transformation in small enterprises, and industrial policy focused on higher-value manufacturing are all part of the long-term competitiveness story. Yet investor confidence remains sensitive to macro-policy clarity. Predictability—rather than stimulus—is what many foreign investors view as the foundation for sustainable growth.

The Commission’s steady growth forecast, however, reflects guarded optimism. Turkey has repeatedly demonstrated the capacity to withstand shocks—currency swings, political volatility, and external tightening cycles. The resilience of its real economy, the dynamism of its SMEs, and its strategic geographic position continue to offer buffers against global turbulence.

For businesses operating in Turkey, the outlook signals a period of moderate but stable expansion. Firms should anticipate a high-interest-rate environment to persist, while focusing on efficiency gains, export positioning, and digital upgrades. For policymakers, the priority remains consistency: credible monetary policy, improving institutional frameworks, and clear communication will shape how investors interpret Turkey’s long-term trajectory.