Turkey's Growth Engine Stalls: Weakest Quarter Since 2020

The Turkish economy exhibited its lowest growth performance in six years during the second quarter, falling short of market expectations. According to data released by TurkStat, the Gross Domestic Product (GDP) growth rate slowed to 2.3% compared to the same period last year, marking the weakest trajectory since the deep contractions of the pandemic era.

Demand Eroding Under Tightening Pressure

The slowdown in economic activity has become evident, particularly through the imbalance in expenditure items and the pressure of macroprudential measures. The data indicates a cooling trend in both internal demand and public spending:

■Household expenditures remained limited with a annual increase of 3.5%.

■Government final consumption expenditures decreased by 1.8%.

■Goods and services exports contracted by 3.4%, while imports dropped by 6.4%.

Monetary Policy and Rate Cut Anticipations

This loss of momentum in growth may reshape the Central Bank of the Republic of Turkey's (CBRT) strategies for the coming period. There are growing expectations that the current policy rate of 37% may be lowered to prevent further economic cooling.

According to Muhammet Mercan, Chief Economist at ING, rising borrowing costs and tightening measures are exerting significant pressure on growth. Markets are increasingly pricing in a potential reduction of the policy rate to 35% by the end of 2026.

First Cracks in the Employment Market

The economic slowdown has begun to impact the employment capacity of the real sector. July 2026 data confirms the fragility of the labor market:

■The number of unemployed increased by 150,000 compared to the previous month, reaching 2.86 million.

■The unemployment rate rose by half a percentage point to 8.1%.

The rise in borrowing costs and macroprudential tightening has directly suppressed the growth rate of commercial loans. Specifically, the credit crunch in the SME segment has minimized investment appetite, serving as the primary catalyst for this GDP slowdown. A potential rate cut by the CBRT will be a critical threshold not only for macro figures but also for revitalizing credit volumes within the banking sector.