Economy
OECD sees weaker growth, higher inflation if Mideast war drags on
The global economic outlook hinges on how long the war in the Middle East lasts, with recession in some countries and sharply higher inflation a real possibility if it drags on into next year, the Organisation for Economic Co-operation and Development (OECD) warned on Wednesday.
If the conflict proves short-lived, Gulf oil and gas production could gradually return to pre-crisis levels from the third quarter with shortages confined to Asia and cushioned by strategic reserves and shipments from other producers.
In that baseline scenario, global growth is projected to slow from 3.4% in 2025 to 2.8% in 2026 before picking up to 3.1% in 2027, broadly in line with the OECD’s March forecasts.
In its previous economic outlook, the group of 38 industrialized countries had forecast 2026 global growth of 2.9%.
“The longer the disruption lasts, the greater the economic, but also the social cost of this crisis, and it certainly will make policy changes much more difficult,” OECD chief economist Stefano Scarpetta told a press conference.
If energy disruption persists well into next year, global growth could slow sharply to 2.1% in 2026 and 1.8% in 2027 – rates rarely seen outside major crises such as the 2008 to 2009 financial crash or the COVID-19 pandemic.
Some economies could fall into outright recession, with Asian countries reliant on Middle East energy supplies expected to be hit hardest.
In the protracted disruption scenario, higher energy prices could add 0.4 percentage points to global inflation in 2026 and 1.3 percentage points in 2027, likely prompting central banks to hike interest rates by 0.5 to 0.75 percentage points in the short term.
In the baseline scenario, the OECD forecast that inflation across G-20 economies would peak at 4% this year before slowing to 3.1% next year with interest rates largely on hold this year and cuts expected next year.
“Around one-third of OECD economies are projected to experience negative real wage growth this year. Workers in these countries will see their living standards fall, which is the human reality behind the inflation numbers,” OECD Secretary-General Mathias Cormann said.
Global trade growth is set to moderate following a strong 2025, though robust demand for AI-related goods and investment, especially in Asia, should provide some support.
Uneven outlooks
In the baseline scenario, stronger energy exports are expected to support U.S. growth, partly offsetting the drag from higher prices on household purchasing power. Growth is projected to ease from 2.1% in 2025 to 2.0% in 2026 and 1.8% in 2027.
In Europe, eurozone growth was seen slowing from 1.4% to 0.8% this year before rising to 1.2% next year as resilient labor markets and higher defense spending help offset government belt-tightening.
In Britain, growth is projected to slow to 0.9% this year before recovering to 1.1% in 2027 as global trade stabilizes and financial conditions ease.
In Asia, China was seen slowing from 5.0% growth in 2025 to 4.5% in 2026 and 4.3% in 2027 with ample energy reserves limiting exposure to oil price spikes. Exports are set to benefit from lower U.S. tariffs and a competitive tech sector, although a property slump remains a drag.
Japan is expected to be among the hardest-hit by trade disruptions linked to the Gulf conflict, with growth slowing from 1.1% in 2025 to 0.6% in 2026 before edging up to 0.8% in 2027, a downgrade from March.
While subsidies will help cushion the energy shock, the OECD said Japan needs a “clear and credible” plan to rein in public finances over the medium term as interest rates rise.
Türkiye forecasts
The Paris-based organization also trimmed its 2026 growth forecast for Türkiye, citing weaker domestic demand amid high energy and commodity prices and tighter financial conditions, while leaving its 2027 outlook unchanged.
OECD cut its 2026 projection to 3.1% from 3.3% in March, and expects growth to rise to 3.8% in 2027.
“After some initial weakness in the first half of 2026, domestic demand is expected to pick up once the economic fallout from the Middle East conflict diminishes,” it noted.
As a net importer of energy and fertilizers, Türkiye remains exposed to higher prices, which will continue to weigh on inflation and the current account, and in turn could trigger currency depreciation and boost imported inflation, it added.
The OECD stressed that bringing inflation down remains the policy priority and requires sustained tight macroeconomic settings.
“Achieving rapid disinflation will require continuously tight monetary policy,” it said.
After easing earlier in the year, disinflation is expected to regain pace in the second half of 2026 and through 2027.
Consumer prices rose almost 4.2% month-over-month and nearly 32.4% on an annual basis in April, mainly driven by Iran war-linked pricing pressures.
According to OECD, headline inflation is projected to fall to 15% year-over-year by the end of 2027, supporting stronger private consumption and lifting growth.
Upside risks persist, including high energy prices and rising inflation expectations if policy action lags.
The OECD sees the interest rates likely remaining on hold amid high commodity prices, before decreasing to 20% by the end of next year.
At its last meeting, the Central Bank of the Republic of Türkiye (CBRT) held its benchmark one-week repo rate steady at 37%.
The bank said geopolitical risks and energy price volatility continued to pose uncertainty for inflation.
Separately on Wednesday, the European Bank for Reconstruction and Development (EBRD) cut its Türkiye growth forecast to 3.5% from 4% for 2026 and to 4% from 4.5% for 2027.
The EBRD cited rising energy imports, persistent inflationary pressures and Iran war spillover risks on tourism and manufacturing supply chains.
“Disinflation is costly and acts as a brake on the economy, but the cost of not addressing inflation would be much higher,” EBRD chief economist Beata Javorcik said.
Türkiye’s retail sales growth moderated in April to the lowest level in just over a year, following months of strong momentum, official data showed on Tuesday.
The volume of retail sales rose 11.4% year-over-year in April, said the Turkish Statistical Institute (TurkStat).
This was much slower than the 21.7% surge in March, which was the fastest growth since February 2024. Moreover, the latest rate of expansion was the weakest since March 2025, when sales climbed 10.3%.
Meanwhile, total trade sales volume edged up 0.1% on an annual basis, the data showed.
Apart from retail sales, wholesale trade sales fell 3.3%, while the repair of motor vehicles and motorcycles volume decreased by 7.6% compared to the same period last year.
On a monthly basis, on the other hand, retail sales fell 1.7% in April while trade sales volume decreased 2.7%, as per TurkStat.
Annual sales growth in nonfood products, excluding fuel, slowed to 14.5% from 29.5%, while growth in food products improved to 7.6% from 7.4%. Sales of automotive fuel were 2.7% higher than a year earlier.
Data also showed that online retail grew 17.9% from last year, though slower than the 21.1% increase registered in March.
Solar electricity generation in Türkiye reached its highest level of the year on Monday, according to official figures.
The output reached 184,466 megawatts, the Turkish Electricity Transmission Corporation (TEIAŞ) data released on Tuesday showed.
Daily electricity consumption in Türkiye increased by around 18.2% on Monday compared to the previous day, totaling 972,052 megawatt-hours.
Electricity production amounted to 966,812 megawatt-hours, marking a rise of 16.9% compared to Sunday.
Electricity production from dam-based hydro plants accounted for around 25.7% of total generation, while solar and imported coal plants contributed 19% and 11.5%, respectively.
On Monday, the country’s electricity exports totaled 8,159 megawatt-hours, while imports amounted to 2,785 megawatt-hours.
Türkiye’s installed electricity capacity rose to 125,410 megawatts (MW) as of the end of April, driven by a rapid growth in renewable sources such as solar and wind.
Renewables accounted for 62.5% of that. Solar energy has been the fastest-growing segment, having reached 26,769 MW and accounting for 21.3% of total installed capacity.
Wind power increased to 15,075 MW, representing 12% of total capacity.
Türkiye aims to reach a combined 120,000 MW of installed solar and wind capacity by 2035, as is seeks to gradually reduce its carbon emissions to zero by 2053.
Housing prices in Türkiye extended their decline in real terms in May, despite continued growth in sales volumes, as elevated borrowing costs weigh on the property market.
Data from the Central Bank of the Republic of Türkiye (CBRT) showed on Tuesday that the Residential Property Price Index (RPPI) rose 1.7% month-over-month in May and was up 24.5% from a year earlier in nominal terms. The annual nominal increase was the weakest since May 2020.
Adjusted for inflation, however, house prices fell 6.1% year-over-year, marking the 27th monthly real decline in the past 28 months.
Inflation in Türkiye edged up to 32.6% in May from 32.4% in April.
Analysts said the divergence between stronger sales volumes and weaker real prices reflected a market driven more by deferred demand than fresh speculative interest.
“Under normal circumstances, the recovery in transaction volumes would be expected to feed more strongly into prices. The acceleration in real declines was therefore somewhat surprising,” said Ali Hepşen, a professor at Istanbul University’s Faculty of Business Administration.
He said many buyers who postponed purchases in 2023 and 2024 had returned to the market, boosting sales without generating the same degree of upward pressure on prices.
Latest data showed nationwide house sales rose 2.6% from a year ago in April, while the four-month figure jumped 0.5%.
After recording a 1.4% annual real increase in January 2024, house prices slipped back into negative territory in February of that year and have remained below inflation ever since, with the exception of a marginal 0.3% real increase in November 2025.
The pace of real declines has accelerated in recent months, widening from 1.4% in December to 6.1% in May. The annual real decrease stood at 2.3% in January, 3.9% in February, 3.4% in March and 4.3% in April.
“High interest rates remain the main factor limiting prices,” Hepşen said. “Mortgage costs are still elevated, meaning cash buyers continue to dominate the market. This leads to more controlled price movements.”
He added that the current trend also represented a rebalancing after the sharp increases seen in previous years, when house prices had significantly outpaced inflation.
“Prices are increasing in nominal terms, but because the overall price level is rising more quickly, the decline continues in real terms.”
Last week, Türkiye’s central bank left its key interest rate at 37%, as expected, holding steady for a third consecutive meeting, as it monitors the inflation impact of the Iran war.
Since the conflict started at the end of February, the CBRT has halted an easing cycle that began in late 2024.
In its quarterly inflation report in May, the bank raised its end-2026 interim inflation target to 24% from 16%. It sees it falling to 15% in 2027 and to 9% by the end of 2028.
Hepşen said he did not expect a return to strong double-digit real price gains unless mortgage rates declined materially.
How long the decline in real housing prices will continue depends largely on the inflation and interest rate outlook, he added.
Under current conditions, Hepşen said it is likely that house prices will continue to underperform inflation at least until the end of 2026.
“Because today, credit demand, the main factor that would push housing prices higher, is still not strong enough,” he noted.
“We foresee that without a lasting decline in interest rates, the return to real price increases will remain limited.”
Real estate economist Ahmet Büyükduman said house prices and real interest rates historically moved in opposite directions.
“They (house prices and real interest rates) resemble two ends of a seesaw,” Büyükduman said. “When real interest rates rise, housing prices remain below inflation and decline in real terms.”
As long as the current monetary policy stance and high real interest rates remain in place, he said house price increases are likely to stay below inflation.
“I think the increase in housing prices will remain below inflation over the next year as well,” Büyükduman added.
Hyundai said on Tuesday it would strengthen its investment in the production of its upcoming IONIQ 3 electric vehicle in Türkiye with a new battery assembly facility.
The mass production of the IONIQ 3, which is expected to begin in August, will mark the South Korean carmaker’s first EV production in Europe.
It will also make it the first foreign automaker to manufacture battery-powered cars in Türkiye.
The company has allocated 55 million euros ($63.81 million) of its total 715 million euro investment package to the battery plant, Hyundai Motor Türkiye said in a statement.
The facility will assemble battery packs using automated systems in cooperation with Hyundai Mobis.
The investment is expected to create more than 300 jobs in its initial phase and contribute to the development of expertise needed by Türkiye’s electric vehicle sector, the statement read.
The company said it expects IONIQ 3 output to reach 27,000 units this year and exceed 40,000 vehicles in 2027.
The battery factory, built on a 30,000-square-meter (nearly 98,500-foot) site, will house 27 robots and feature automated packaging processes designed to minimize manual handling in production.
Nickel manganese cobalt (NMC) battery cells will be sourced from Hungary, while lithium iron phosphate (LFP) battery packs for shorter-range variants will be supplied entirely from China.
Hyundai will become the second EV producer in Türkiye after homegrown brand Togg, and the first among foreign automakers.
Hyundai’s plant in northwestern city of Izmit has an annual production capacity of 245,000 vehicles and currently produces the i20 and Bayon models.
IONIQ 3 is scheduled to roll off production lines in August before going on sale in the domestic market in September with two battery and powertrain options.
Hyundai Motor Türkiye’s Sales, Marketing and After-Sales General Manager Murat Berkel called the new battery investment a “source of great pride.”
“This investment, which is highly significant both for our country and for the Turkish automotive industry, will contribute to our brand’s growth in Türkiye,” Berkel noted.
The Izmit facility, which is also Hyundai’s first overseas manufacturing plant, has produced 3.3 million vehicles since operations began in 1997.
Hyundai Motor Group plans to invest $90 billion globally by 2030, launching 21 fully electric and 13 hybrid models.
Germany on Tuesday formally rejected UniCredit’s offer for Commerzbank shares, citing a low price and concerns about what it called the Italian lender’s aggressive approach.
UniCredit’s initial offer period for Commerzbank shares is winding down, with both banks digging in their heels in the months-long battle for control of one of Germany’s most important lenders.
On Monday, the Italian bank hailed the fact that it had exceeded the 30% threshold it had set for this takeover bid. The Milan-based lender launched its bid, valued at 35 billion euros ($40.6 billion), in early May to gain control of its German rival and cement its status as a European heavyweight.
The German government holds a 12% stake in Commerzbank acquired in the wake of the 2008 global financial crisis and has long objected to UniCredit’s campaign for a tie-up.
“Accepting the offer was already not an option from a financial point of view, as it does not include an appropriate premium on the current share price of Commerzbank’s shares,” the country’s finance agency said on Tuesday.
Despite Berlin’s position, UniCredit could still win control of the German bank, but the government’s stake gives it seats on Commerzbank’s supervisory board, which appoints management and helps oversee its strategy.
Financial Market Stabilization Fund, which manages the government’s holdings, also said that it supported Commerzbank’s independence, and noted that the bank played a critical role in financing medium-sized Mittelstand companies and was an integral player in Frankfurt, the nation’s financial hub.
“Both must continue to be ensured in the future,” it said.
Separately, Frankfurt prosecutors on Tuesday confirmed that they had begun a preliminary investigation into “possible market manipulation” related to the offer, without providing details.
It follows a criminal complaint filed by Commerzbank’s workers’ council that reached prosecutors on Sunday. The employee group had communicated to staff that they would file the complaint against unspecified persons amid questions about UniCredit’s acquisition of Commerzbank shares at a below-market rate.
UniCredit said in a statement that it was aware of the matter and that the prosecutors’ response was “in line with protocol when such complaints are filed.”
In Tuesday’s trading, Commerzbank shares slipped below the price implied by UniCredit’s buyout offer, after trading consistently above that level since the bid was launched and rendering Italian bank’s offer relatively unattractive.
Shares in Commerzbank were trading at 36.53 euros by 0812 GMT, while those of UniCredit were at 76.97 euros. With an exchange ratio of 0.485 new UniCredit shares for each Commerzbank share tendered, the Italian bank’s bid values Commerzbank at 37.33 euros a share.
The offer ends on Tuesday but will extend for a further 15 days from June 20.
If the offer succeeds and is approved by the European Central Bank (ECB), it should mainly allow UniCredit to gradually increase its stake in Commerzbank and merge it with its German subsidiary HypoVereinsbank.
In particular, the Milan-based bank is proposing to cut back Commerzbank’s international network, deemed too complex and inefficient, and refocus the bank on its activities in Germany.
Chancellor Friedrich Merz said in May the bid was destroying “trust” in Germany’s second-largest private bank.
Seeking to fend off the advances, Commerzbank’s CEO Bettina Orlopp unveiled a strategic plan to strengthen profitability through 2030, including job cuts to become leaner and more attractive to shareholders.
UniCredit has meanwhile asserted that by surpassing the 30% threshold of voting rights, it should be allowed to appoint all of the shareholder representatives to the supervisory board, where two representatives of the German state currently sit.
Orlopp has contested that position, pointing to an agreement with Berlin that guarantees Commerzbank the power to propose the state’s representatives to the board.
Germany’s Economy and Energy Minister Katherina Reiche is expected to visit Türkiye later this week for high-level talks on strengthening trade and energy cooperation, according to her ministry on Monday.
“Türkiye is a strategically important partner for Germany,” ministry spokesperson Susanne Ungrad told reporters in Berlin.
“The visit on Thursday and Friday will focus on the German-Turkish economic and energy partnership,” she said.
Reiche is scheduled to attend meetings of the Joint Economic and Trade Commission (JETCO) and the German-Turkish Energy Forum, both long-standing platforms for deepening bilateral ties.
She will also hold direct talks with Turkish ministerial counterparts, accompanied by around 30 business leaders from key economic and energy sectors.
Germany is one of Türkiye’s largest economic partners and remained its top export destination in 2025.
Supported by more than 8,000 companies with German capital that are registered and active in the country, bilateral trade exceeded $52 billion last year.
During German Chancellor Friedrich Merz’s visit to Ankara in October 2025, the two countries announced their joint ambition to increase bilateral trade to over $60 billion in the near future.
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