Türkiye’s Economy Holds Up Despite Iran War, Tight Policy

 

Türkiye’s Economy Holds Up Despite Iran War, Tight Policy

**Turkey's economy grew 2.3% in the second quarter of 2026, defying expectations of a sharper slowdown caused by the Iran war and tight domestic monetary policy .**

Turkey's economy has shown surprising resilience. Despite the shock of the Iran war and the drag of a tight monetary stance, the country recorded a 24th consecutive quarter of economic expansion . The 2.3% year-on-year growth in Q2, while softer than the previous quarter's revised 2.6%, beat the worst-case predictions .

The key takeaway from the data is that **exports have acted as a crucial buffer, offsetting the negative impacts of the conflict** .

## A Tale of Two Forces: Weaker Demand, Stronger Trade

The quarterly growth figure reveals two opposing forces at work in the Turkish economy:

### 1. Domestic Demand is Cooling

The central bank's tight monetary policy is having its intended effect. Domestic demand is slowing, as shown by the declining share of imports and weaker non-energy import data .

While household consumption increased 3.5% from a year ago, this was down sharply from 5.1% in the first quarter . Investment also slowed, with gross fixed capital formation growing just 0.6%, compared to 3.1% in Q1 .

### 2. Exports Are Stepping Up

The conflict in the Middle East, which sent energy prices soaring and the Strait of Hormuz into turmoil, also opened a window of opportunity for Turkish exporters .

The central bank noted that supply chain disruptions prompted some buyers to shift orders toward Turkey . This resilience, alongside strong growth in the defense sector, helped exports remain robust. This allowed the foreign trade balance to improve in the second quarter despite a 32.4% jump in energy import costs .

## The "Odd Couple": Slow Growth and Rising Inflation

The strongest evidence of the Iran war's impact is on prices. The central bank itself has said the conflict delayed the disinflation process . Annual inflation, after briefly stalling, eased slightly to 32.1% in June .

The central bank warns that the war has created significant "upside risks" for inflation . Official forecasts remain grim, with the year-end 2026 inflation target raised to 24%, up from 16% before the war began .

**"Recent uptick in underlying inflation poses upside risks for near term inflation."**

— **CBRT Governor Fatih Karahan** 

## The Outlook: A Precarious Balance

The data shows the Turkish economy is walking a tightrope. The government's tight monetary policy, which has kept the benchmark rate at a high 37% , is successfully cooling domestic demand and supporting the lira. This in turn has helped keep the current account deficit more manageable than initially feared .

However, the policy has not yet conquered inflation, which remains over 30% . Furthermore, the CBRT's efforts are complicated by market expectations. A recent central bank survey showed the market expects year-end inflation of 29.21% and a further depreciation of the lira to 51.55 per dollar .

Most economists see the 2.3% GDP figure as a sign of resilience, but it is a resilience born of high inflation and an export boost from a war. The central bank now expects growth to cool further to around **3.1%** for the full year , with BBVA Research nowcasting growth of around 3% for the third quarter .

## Frequently Asked Questions (FAQs)

### 1. How is Turkey's economy performing despite the war?

Turkey's economy grew 2.3% in the second quarter, supported by strong exports that offset the negative impacts of the conflict and tight policy .

### 2. What is the biggest threat to Turkey's economy?

The biggest threats are persistently high inflation, which remains above 30%, and the risk of further geopolitical escalation in the Middle East .

### 3. How did the CBRT respond to the war?

The central bank paused its easing cycle and maintained a tight monetary policy, holding its benchmark rate at 37% .

### 4. Is Turkey's central bank planning to cut rates?

Analysts expect the central bank to begin gradually easing policy from September, but they are proceeding cautiously due to high inflation and expectations .

### 5. What are the forecasts for Turkey's growth in 2026?

Economists forecast full-year growth of around 3%, with Q3 nowcast at 3%, but risks remain from the conflict .

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## Disclaimer

*This article is for informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. The information is based on publicly available data and reports as of August 31, 2026. Market conditions and forecasts are subject to change. Before making any decisions, please consult with a qualified professional.*