GLOBAL ECONOMY

For the global economy, 2025 was a year of continued uncertainty, yet overall macro stability was largely maintained. Following the presidential transition in the US, a rapid adjustment to the negative impact of tariffs implemented by President Donald Trump helped avert a global recession, and the global economy maintained its stability despite short-term shocks. The loss of momentum in energy prices, initiated by OPEC+ member countries increasing oil production, led to a continued downward trend in global inflation. Investors’ search for safe havens and increased risk appetite in the second half of the year drove stock markets and commodity prices to record levels.

Throughout 2025, risks of a government shutdown, tariffs, and protectionist trade policies in the US increased economic uncertainty, creating downward pressure on growth. In this environment, the US Federal Reserve (Fed) continued with limited interest rate cuts in response to the delayed effects of tightening and signs of slowing economic activity, but maintained its cautious, meeting-by-meeting monetary policy stance as tariffs sustained inflationary pressures through the cost channel. While employment growth in the labor market slowed, relatively strong wage growth supported domestic demand; however, it made it more difficult for inflation to converge to its target. Policy uncertainties and protectionist trends limited growth in the US, bringing it down to 2.2% in 2025, and caused inflation to end the year at 2.9% due to the impact of tariffs, despite declining during the year.

In Europe, weak global demand, rising protectionist trends in trade, and geopolitical uncertainties continued to limit growth in 2025. In line with the decline in inflation, the European Central Bank (ECB) moved toward limited interest rate cuts, while labor markets generally remained resilient. The decision by NATO member countries to increase defense spending supported production and investment in related sectors, contributing to growth. Defense industry investments are expected to be a significant factor in the economic growth of European countries in the coming years. In this context, economic growth in the Eurozone accelerated to 1.5% in 2025 compared to the previous year, driven by a gradual easing of financial conditions and public-supported investments. The decline of Eurozone inflation to the ECB’s 2% target in 2025 was one of the key factors supporting the growth outlook in the Eurozone, as it created room for a gradual easing of monetary policy.

In Asia, trade tensions, particularly between the US and China, led to continued weak demand conditions and disinflationary pressures in China, while public authorities announced new stimulus packages at various times during the year to support economic activity. As a result, the Chinese economy grew by 5% in 2025, following its performance in 2024. The Japanese economy showed moderate growth in 2025, influenced by the responsible and effective fiscal policy stated by Japan’s first female prime minister, Sanae Takaichi, who took office following a change in leadership during the year.

The global economy in 2025 was shaped by interest rate cuts and policy divergences.

With the diminishing effects of inflation that had risen due to the new post-pandemic environment and geopolitical developments, 2025 was a year in which the interest rate cut cycle that began the previous year accelerated. The interest rate cuts initiated by the Fed at the end of 2024 were observed to continue in 2025, albeit at a slower pace due to inflationary pressure from tariffs. The Fed entered 2025 with a policy rate of 4.5% and cut that rate by 25 basis points at each of its last three meetings, beginning with the September meeting, bringing it down to 3.75%.

The ECB, which began 2025 with an interest rate of 3.15%, cut rates by 25 basis points in its first four meetings of the year, ending the year with a policy rate of 2.15%. The ECB, which held rates steady in the last four meetings of the year, continued to signal that it would maintain its meeting-by-meeting approach. The Bank of England (BoE) implemented a total of 100 basis points in cuts in 2025, lowering its policy rate to 3.75%.

Contrary to the interest rate cut decisions implemented by central banks in developed countries, as was the case in 2024, the Bank of Japan (BoJ) continued with rate hikes in 2025. The BoJ raised its interest rate by a total of 65 basis points in 2025 to 0.75%, bringing the policy rate to its highest level since 1995.

In emerging markets, Russia, Argentina, and Mexico took the most significant steps in cutting interest rates in 2025. While many central banks in developed countries cut interest rates in 2025, emerging market central banks generally followed this trend, although some diverged. Accordingly, the Central Bank of Brazil continued the rate hikes it began in September 2024 into 2025, raising the interest rate to 15%.

TURKISH ECONOMY

After closing 2024 with a growth rate of 3.3%, the Turkish economy grew by 3.6% in 2025. In 2025, the Turkish economy recorded growth of 2.5% in the first quarter, 4.7% in the second quarter, and 3.8% in the third quarter, compared to the same quarters of the previous year. Within the framework of major revisions made under the System of National Accounts, TurkStat’s revision of the annual GDP series back to 1995 was a factor in the increase in the second-quarter growth rate. The quarterly growth path showed a weak outlook compared to the first quarter of the year, followed by a significant recovery in the second quarter, a more balanced outlook in the third quarter, and a moderate growth trend of 3.4% in the final quarter. Domestic demand was the main driver of growth throughout 2025, with the vibrancy in demand conditions becoming particularly evident in the construction and services sectors on the production side. GDP at current prices, based on the production approach, increased by 41.3% in 2025 compared to the previous year, reaching TL 63 trillion 20 billion 906 million. An examination of the sectoral breakdown shows that the construction sector recorded the highest growth rate at 10.8%, while the strong performance of the services sector also made a significant contribution to growth. In contrast, the agricultural sector contracted by 8.8%, limiting growth. When evaluated using the expenditure approach, household consumption supported growth by increasing 4.1% in 2025 compared to the previous year, while investments showed a strong performance with a 7% expansion. The contribution of public consumption, however, remained limited. As a result of the contraction in exports and the increase in imports, the net export channel had a downward effect on growth. Thus, the Turkish economy grew by 3.6% for the full year 2025, exceeding the 3.3% target set in the Medium-Term Program (MTP).

Consumer inflation rose by 0.89% on a monthly basis in December, bringing the annual rate down to 30.89% for 2025.

Inflation, which ended 2024 at 44.38%, continued its gradual downward trend in 2025. The impact of tight monetary policy over time, the rebalancing of domestic demand, and signs of a slowdown in services inflation were decisive factors in the gradual decline of inflation throughout the year. Throughout the year, wage increases, tax and Special Consumption Tax (SCT) adjustments, changes in electricity, natural gas, and fuel prices, as well as weather-related developments such as agricultural frost and drought, contributed to inflationary pressures in certain months. However, the impact of these effects on the overall inflation outlook was observed to be limited. The Consumer Price Index (CPI) rose by 0.89% on a monthly basis in December, below the expectation of 1%. Thus, year-end inflation for 2025 was 30.89%, a decrease of 13.49 percentage points from the 44.38% level at the end of 2024. The Domestic Producer Price Index (D-PPI) increased by 0.75% in December compared to the previous month, while the annual rate rose from 27.23% in November to 27.67% in December. The D-PPI had reached its lowest level since November 2020 in April 2025, at 22.50%. The annual D-PPI followed a horizontal trend throughout the year, remaining close to its level at the beginning of the year. This outlook indicated that the disinflation process was progressing in a gradual and controlled manner.

The CBRT lowered the policy interest rate by 9.5 percentage points in 2025.

In 2025, the Central Bank of the Republic of Türkiye (CBRT) shaped its monetary policy decisions within a cautious, meeting-by-meeting framework focused on the inflation outlook; it changed the direction of its policy rate depending on the inflation outlook to support the disinflation process and maintain financial stability. The CBRT began the year by continuing the rate-cutting process initiated in December 2024, lowering the policy rate to 42.5% with a total of 500 basis points in cuts in January and March. During this process, the Board emphasized that the tight monetary policy stance would be maintained until a permanent decline in inflation is achieved, and noted that the rebalancing of domestic demand, the real appreciation of the Turkish lira, and the improvement in expectations supported the disinflation process. In April, due to continued uncertainties regarding a permanent decline in the main inflation trend and weakening support from domestic demand for the disinflation process, the CBRT raised the policy rate by 350 basis points to 46%, exceeding expectations. The policy statement indicated that core goods inflation could show a limited increase in April due to financial market developments, while services inflation would remain relatively flat; it also emphasized that the potential effects of rising protectionist trends in global trade on the disinflation process would be closely monitored. In the second half of the year, in line with signs of improvement in the disinflation process and weakening demand conditions, the CBRT cut the policy rate by 300 basis points to 43% in July, exceeding expectations. With continued gradual cuts in September, October, and December, the policy rate fell to 38% by the end of the year. During this process, the Board emphasized that the size of the steps would be determined in line with inflation realizations, the main trend, and expectations, while maintaining the message that the monetary policy stance could be tightened again if the inflation outlook deviates significantly from interim targets. Throughout 2025, the CBRT pursued a predictable, data-driven, and cautious monetary policy stance in line with its price stability objective.

The current account deficit widened in 2025 compared to the previous year.

In the first half of the year, uncertainties in global trade, a rising trend in imports, and strong gold imports led to a widening of the current account deficit. The current account balance, which was in deficit in the first half of the year, posted a surplus in the July–October period, supported by tourism and transportation revenues, which reflect seasonal effects. During this period, the strengthening of net services income offset the widening of the foreign trade deficit. However, in November and December, the current account balance returned to a deficit due to a year-on-year decline in services income and an increase in the foreign trade deficit. Thus, the current account deficit in 2025 was USD 25.2 billion, exceeding the USD 22.6 billion projected in the Medium-Term Program, due to the increase in the foreign trade deficit and the widening of the primary income balance, despite the positive impact from the services balance.

The budget balance showed a volatile trend throughout the year.

In the first half of 2025, the central government budget remained weak due to interest expenses and current transfer items, while in the second half, the budget balance varied on a monthly basis depending on periodic tax collections. At the beginning of the year (especially in February-March), a sharp increase in interest expenses and current transfers (Social Security Institution, state-owned enterprise duty losses) widened the budget deficit, while on the revenue side, income tax, domestic VAT, and SCT collections remained strong. In May and especially in August, periodic collections, primarily from corporate tax, supported the budget balance; in the September-October period, a strong increase in expenditures caused the budget balance to turn into a deficit again. In November, the budget balance recorded a surplus of TL 169.5 billion, while the primary balance showed a surplus of TL 287.4 billion. In December, the last data point of the year, the central government budget had a deficit of TL 528.1 billion. Thus, in the January-December 2025 period, the central government budget deficit decreased by approximately TL 307 billion year-over-year to TL 1,799.1 billion. In 2025, the budget deficit was TL 1,799.1 billion, which was below the target of TL 1,930.7 billion and the forecast of TL 2,208.3 billion set in the Medium-Term Program (MTP). Thus, for 2025, the budget deficit/GDP ratio is estimated to be below the 3.6% stated in the MTP.

In its decision on April 25, S&P affirmed the long-term credit rating as “BB-” and did not make an update in its October 17 review. Fitch maintained Türkiye’s credit rating at “BB-” with a “stable” outlook, citing high inflation (2025: 28%, 2026: 21%), low external liquidity, and weak governance as risks, while expecting growth to slow to 2.9% in 2025 before rising to 3.5% in 2026 and 4.2% in 2027.

Moody’s upgraded Türkiye’s credit rating from B1 to Ba3 and changed its outlook from positive to stable, citing the Central Bank’s commitment to a tight monetary policy that permanently reduces inflation and increases confidence in the Turkish Lira, as well as an improvement in policymaking capacity.

Excluding Moody’s, international credit rating agencies did not make any changes to Türkiye’s credit rating or outlook.

BANKING SECTOR

The monetary tightening of 2024 continued into the first quarter of 2025. The monetary policy easing that began in the second half of the year was reflected in a delayed and limited decline in loan interest rates. Consequently, a slight increase was observed in the annual growth rate of loans. Thus, the annual growth rate of loans increased from 37.47% at the end of 2024 to 44.08% at the end of 2025. The annual growth rate of funds collected from banks, which was 31.6% at the end of 2024, rose to 34.2% in 2025. Thus, the annual growth rate of assets increased from 38.7% at the end of 2024 to 43.7% at the end of 2025.

Deposits, one of the important funding sources for banks, saw their annual growth rate increase from 27.3% at the end of 2024 to 44.03% at the end of 2025. The rise in the annual growth rate of FX deposits was a determining factor in this increase. Although TL deposits performed strongly in the first quarter of the year, the shift towards money market funds was effective in their decline starting from the second quarter. In 2025, the increase in non-deposit funds (NDF) was observed to be volatile. As a result of the delayed and limited effects of the CBRT’s expansionary monetary policy starting from the second half of 2025, a slight decrease was seen in deposit interest rates. NDF, which ended 2024 at 65.9%, decreased to 43.4% at the end of 2025.

Despite the decline in 2024, an increase was observed in the annual growth rate of profit in 2025. Thus, the sector’s net profit for the period, which increased by 6.4% in 2024, rose by 42.4% in 2025. The capital adequacy ratio, which was 19.72% at the end of 2024, was 19.69% in 2025.