Turkey's Q2 Growth Slows to 2.3% as Domestic Demand Contracts

Turkey's economy expanded 2.3% year-on-year in the second quarter, official data showed on Monday, falling short of the 2.9% forecast in a poll of economists. This marks the fourth consecutive quarter of slowing growth, with the latest figures reflecting the impact of tight monetary policy and the ongoing Iran war on domestic demand.

On a seasonally and calendar-adjusted basis, gross domestic product rose 1.1% quarter-on-quarter, according to the Turkish Statistical Institute. The data revealed a notable shift in the composition of growth: external demand contributed 0.6 percentage points to GDP for the first time in over a year, while domestic demand shrank by 1.3% quarter-on-quarter.

Treasury and Finance Minister Mehmet Simsek described the second-quarter performance as "balanced" and expressed optimism about the future. "Thanks to progress in the disinflation process and more supportive global conditions, we expect growth to gradually increase in the coming period," he said in a statement.

Sectoral data showed agriculture, forestry, and fishing led the expansion with 13.3% growth, followed by information and communication at 8.6%. Analysts noted that the positive contribution from net external demand after six quarters signals the early stages of the "rebalancing among demand components," a key objective of the government's economic program.

Annual consumer price inflation stood at 31.75% in July, underscoring the challenges facing the central bank, which has held its policy rate at 37% over the last four meetings while monitoring the fallout from the Iran war. The economy grew 2.6% in the first quarter on revised figures, and full-year 2025 growth was revised up to 3.7% from 3.6%.

The government's current medium-term programme projects 3.8% growth for 2026, with a new programme scheduled to be announced on September 7.