In recent years, the positive effect of the structural macroeconomic reforms carried out in the early 2000s has begun to weaken in Turkey, leading to a slowdown in labor productivity growth and an increase in the dependence of economic growth on external financing and domestic demand. Nevertheless, the Turkish economy (one of the few) avoided recession during the COVID-19 pandemic in 2020, and by the end of 2021, the country's real GDP had grown by 11.4%, which is significantly higher than the global average. The lifting of restrictions in 2021 contributed to stronger-than-expected growth in domestic demand and, as a result, economic recovery primarily driven by household spending.
Against the backdrop of a difficult global economic situation and the Turkish Central Bank's relatively soft monetary policy (maintaining the key rate at a low level relative to price growth), the republic's real GDP growth slowed to 5.5% in 2022 and 5.1% in 2023. Additional challenges for the country included extremely high uncontrolled inflation, a growing current account deficit and significant external debt, as well as the serious socio-economic consequences of the earthquakes that occurred in February 2023.
According to estimates, Turkey's real GDP growth rate was 2.8% in 2024 and is forecast to continue declining in 2025, primarily due to the country's transition to a tighter monetary policy amid persistently high inflation. In the medium term, Turkey's GDP growth rate is expected to increase as inflationary pressures moderate and the Central Bank of Turkey is expected to soften credit conditions.
In 2022, the devaluation of the Turkish lira led to rapid price increases for imported goods, including energy and food. This, combined with high domestic demand, pushed Turkey's inflation rate to a record 72.3% at the end of the year (compared to 19.6% a year earlier).
In 2023, the indicator fell to 53.9%, largely due to the central bank's revision of monetary policy and the start of a cycle of key rate hikes. From February 2023 to October 2024, the rate was increased by a total of 4,150 basis points to 50.0%. Nevertheless, the inflation rate in the republic remained above the average values for 2015–2021, with the fastest growth in prices for services, food, beverages, and tobacco products. In 2024, inflation in Turkey accelerated again amid indexation of tariffs and wages and is estimated at 60.9%.
At the end of 2024, inflation began to decline in the country, prompting the Central Bank of Turkey to decide to lower the key rate: from December 2024 to March 2025, the rate was reduced by 750 basis points to 42.5%.
According to data from the national regulator, inflation continued to decline in 2025, but the problem of the Turkish lira's devaluation remained, which is a significant pro-inflationary factor forcing the government to take measures to support the national currency. It is expected that in the medium term, tight monetary policy will allow Turkey to minimize the pro-inflationary risks associated with the weakening of the lira and achieve a gradual slowdown in price growth.
