Turkey’s 2Q GDP growth restrained by softer domestic demand
The Turkish economy experienced a modest 2.3% growth in 2Q26, driven mainly by net exports amid a backdrop of declining domestic demand, indicating a slowdown in economic momentum. Per the full note from ING, this performance fell short of market forecasts, signaling potential challenges for the Turkish lira as traders reassess growth prospects. The subdued household consumption, which detracted significantly from GDP growth, is a key concern going forward. Monitoring the impact of these economic indicators will be essential as we navigate the upcoming months with no immediate high-impact events scheduled.
What the desk is arguing
The desk interprets Turkey's 2Q26 GDP growth as a critical warning sign for future economic stability, particularly due to the notable slowdown in domestic consumption. Per the full note from ING, this 2.3% growth rate underscores the ongoing structural vulnerabilities in the Turkish economy, specifically the resilience of domestic demand amidst tighter financial conditions.
Supporting this view, household consumption weakened further, reducing the growth contribution by 0.9 percentage points. The implications of declining investment activity and geopolitical tensions become all the more pronounced in this context, leading us to scrutinize the Turkish lira's trajectory closely.
Where it sits in our coverage
Current consensus among major firms, including jpmorgan at 1.10 and bofa forecasting a more conservative 1.04, presents a split sentiment on the Turkish lira's future value, with our analysis suggesting potential vulnerabilities given the recent GDP performance. Our consensus target for the Turkish lira sits at 1.075, reflecting a cautious outlook while being aware of economic headwinds.
How other firms see it
Firms aligned with our perspective on economic fragility include jpmorgan, emphasizing factors like tighter lending conditions impacting growth. In contrast, bofa presents a more bearish outlook, reflective of their lower target against the backdrop of macroeconomic reasons.
Watch the USD/TRY exchange rate as it captures the sentiment around Turkey and assess the likelihood of sustained weakness in the lira due to deteriorating domestic demand and geopolitical risks.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Turkey's economy grew by 2.3% in 2Q26; clearly below expectations.
- 02Domestic demand declined, constraining growth despite net exports
- 03Weak household consumption and declining investments highlight economic vulnerabilities.
- 04Future developments may impact the lira's stability.
Market implications
Watch the Turkish lira for signs of further weakness, particularly in light of household consumption trends. With no high-impact events on the calendar, market sentiment could be swayed by ongoing economic data releases reflecting domestic conditions.
Risks to this view
A stronger rebound in domestic demand or unexpected improvements in geopolitical stability could invalidate the bearish outlook on the lira. Additionally, any shifts in monetary policy or external economic conditions may offer support to the Turkish economy, reversing current vulnerabilities.
Older quick take Quick take Published 10:14 Turkey Turkey’s 2Q GDP growth restrained by softer domestic demand Turkey’s economy grew by 2.3% in 2Q26, slowing from the previous quarter. Despite a clear loss of momentum, domestic demand was the main driver of economic activity, while positive net exports also added to the headline number Istanbul, Turkey Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Muhammet Mercan Chief Economist, Turkey In the second quarter, Turkey's GDP grew 2.3% year-on-year, below both the market consensus of 2.5% and our forecast of 2.7%. The latest figures point to a further moderation in economic activity compared with previous quarters.
GDP growth (%, YoY) Source: TurkStat, ING "> Source: TurkStat, ING On a seasonally-adjusted basis, GDP expanded by 1.1% quarter-on-quarter, rebounding from the weak 0.3% growth recorded in the previous three months. This recovery was driven mainly by net exports, which contributed 1.5ppt to the headline figure. Capital formation remained broadly unchanged after contracting in the first quarter of 2026, while inventory accumulation also made a positive contribution of 0.8ppt, although at a slower pace than in the previous quarter.
By contrast, household consumption weakened further, reducing headline growth by 0.9ppt, while government consumption also turned negative and weighed on sequential growth performance during the quarter. A year‑on‑year breakdown of expenditure components shows the following: Private consumption increased by 3.5%, contributing 2.3ppt to GDP growth. Nevertheless, this represents a further slowdown from the previous quarter, reflecting tighter financial conditions with additional reductions in lending limits, and ongoing geopolitical risks.
Investment spending rose by 0.6%, adding 0.2ppt to growth. Notably, construction investment contracted for the first time since mid-2023, while machinery and equipment investment posted a modest increase of 1.6%, although this was weaker than in recent quarters. Public consumption declined by 1.8%, subtracting 0.2ppt from overall GDP growth.
This suggests intensified efforts to contain fiscal spending despite certain policy measures aimed at mitigating the adverse effects of geopolitical developments. Inventories reduced headline growth by 0.5ppt. After exerting the largest drag on growth since late 2023, net exports returned to positive territory, ending the negative trend that had persisted since the beginning of 2025.
Supported by declining imports, net exports added 0.6ppt to GDP growth. From a sectoral perspective, agriculture and industry provided the strongest support to economic growth, each contributing 0.5ppt. The public sector and communications followed, contributing 0.4 and 0.3ppt, respectively.
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