Turkey’s GDP Growth Loses Momentum in First Quarter

Why It Matters

The deceleration signals heightened vulnerability to external shocks and suggests tighter monetary policy could further strain growth, prompting investors and policymakers to reassess outlooks for Turkey’s market.

Key Takeaways

• Q1 GDP grew 2.5% YoY, missing 2.7% forecast.
• Quarter‑on‑quarter growth slowed to 0.1%, lowest since Q2 2024.
• Net exports dragged growth by 0.7 percentage points.
• Private consumption contribution fell to 0.1 ppt from 2.8 ppt.
• Central Bank tightening may deepen slowdown in H2 2026.

Pulse Analysis

Turkey’s modest 2.5% year‑on‑year GDP rise in the first quarter underscores a broader trend of decelerating momentum that began in late 2025. After a series of quarters above the 3% mark, the economy now registers the slowest sequential growth since the second quarter of 2024. This shift reflects not only a cooling of export demand but also a contraction in private investment, as firms grapple with higher financing costs and lingering geopolitical uncertainty. The data suggest that the domestic engine—consumer spending and government consumption—remains the only buffer, yet even that is losing steam.

The export sector emerged as the chief drag, posting a 2.5‑percentage‑point negative contribution. Rising import bills, fueled by a weaker lira and persistent energy price pressures, outpaced modest export gains. Meanwhile, capital formation slipped, with construction and machinery investment both registering only modest gains. The Central Bank’s recent macro‑prudential tightening—tightening loan‑growth caps and signaling a prolonged high‑rate environment—has amplified financing constraints for businesses. Coupled with elevated borrowing costs, these measures are likely to suppress both private consumption and investment further, especially if inflation remains sticky.

For investors and policymakers, the outlook hinges on two variables: the trajectory of monetary policy and the resolution of regional geopolitical tensions. A continued high‑rate stance could push growth deeper into negative territory in the second half of 2026, while any de‑escalation in the Gulf conflict may provide a modest export boost and improve sentiment. Market participants should monitor upcoming PMI readings, capacity‑utilisation data, and any policy signals from the Central Bank, as these will shape the risk‑return profile of Turkish assets in the months ahead.