Economy
World Bank lifts Türkiye’s 2025 growth forecast as global outlook dims
The World Bank on Tuesday revised its growth forecast for Türkiye upward for 2025, citing continued economic momentum and favorable external conditions, even as it slightly lowered expectations for next year.
In its twice-yearly Global Economic Prospects report, the 189-country lender said it now sees the Turkish economy expanding by 3.1% in 2025, up from its previous estimate of 2.6% made in January.
The upward revision stemmed from what the bank said was the previous momentum, including stronger-than-expected growth in the final quarter of 2024, and lower global oil prices.
Türkiye’s growth eased slightly to 3.2% in 2024, mainly due to aggressive monetary tightening, aimed at combating high inflation that has almost halved over the last year.
Treasury and Finance Minister Mehmet Şimşek on Wednesday linked the improved expectations to confidence in the government’s economic program.
“While the World Bank has downgraded growth forecasts for nearly 70% of economies for 2025, it has increased Türkiye’s growth forecast by 0.5 percentage points,” Şimşek wrote on the social media platform X.
“We will resolutely continue with our policies that reinforce the foundations of sustainable high growth.”
Global forecast sharply downgraded
The World Bank slashed its global growth forecast for 2025 by four-tenths of a percentage point to 2.3%, saying that higher tariffs and heightened uncertainty posed a “significant headwind” for nearly all economies.
The lender lowered its estimate for nearly 70% of all economies – including the U.S., China and Europe, as well as six emerging market regions – from the levels it projected six months ago before U.S. President Donald Trump took office.
In a forward to the latest version of the report, World Bank chief economist Indermit Gill wrote that the global economy has missed its chance for the “soft landing” – slowing enough to tame inflation without generating serious pain – it appeared headed for just six months ago.
“The world economy today is once more running into turbulence,” Gill wrote. “Without a swift course correction, the harm to living standards could be deep.”
Trump has upended global trade with a series of on-again, off-again tariff hikes that have increased the effective U.S. tariff rate from below 3% to the mid-teens – its highest level in almost a century – and triggered retaliation by China and other countries.
The World Bank is the latest body to cut its growth forecast as a result of Trump’s erratic trade policies, although U.S. officials insist the negative consequences will be offset by a surge in investment and still-to-be-approved tax cuts.
Still-tight monetary policy
For 2026, the bank slightly reduced its projection for Turkish gross domestic product (GDP) growth from 3.8% to 3.6%, as the effects of tight monetary policy and expected fiscal reforms are estimated to temper expansion.
For the global economy, the bank’s forecast was lowered to 2.4% from 2.7%.
The report acknowledged Türkiye’s ongoing efforts to rein in inflation through a combination of restrictive monetary policy and anticipated fiscal adjustments.
“Relatively moderate growth in 2025 reflects the effects of still-tight monetary policy, expected fiscal consolidation, and subdued global activity amid heightened uncertainty,” the bank said.
Looking ahead, the World Bank projects that consumption will be the primary driver of growth in 2026 and 2027, supported by continuing disinflation.
“Export growth is likely to be limited by the real appreciation of the (Turkish) lira, subdued euro area demand, and uncertainty surrounding trade policies in major economies,” the report read.
The Central Bank of the Republic of Türkiye (CBRT) pivoted to raising its key policy rate by 350 basis points in April to 46% and pushed the overnight lending rate to 49% after Turkish assets and the lira fell sharply after Istanbul Mayor Ekrem Imamoğlu was jailed pending trial over graft charges.
Before that, the bank had begun an easing cycle and gradually cut its one-week repo rate to 42.5% in March as inflation eased significantly from 75% it had reached in May 2024.
A sharper-than-anticipated slowdown in annual inflation to 35.41% in May has reignited speculation that the bank could resume rate cuts soon.
Weakest global growth since 2008
The World Bank stopped short of forecasting a global recession, but said economic growth this year would be the weakest outside of a recession since 2008. By 2027, global gross domestic product growth was expected to average just 2.5%, the slowest pace of any decade since the 1960s.
The report forecast that global trade would grow by 1.8% in 2025, down from 3.4% in 2024 and roughly a third of its 5.9% level in the 2000s. The forecast is based on tariffs in effect as of late May, including a 10% U.S. tariff on imports from most countries. It excludes increases that were announced by Trump in April and then postponed until July 9 to allow for negotiations.
The World Bank said global inflation was expected to reach 2.9% in 2025, remaining above pre-COVID-19 levels, given tariff increases and tight labor markets.
“Risks to the global outlook remain tilted decidedly to the downside,” it wrote. The lender said its models showed that a further increase of 10 percentage points in average U.S. tariffs, on top of the 10% rate already implemented, and proportional retaliation by other countries, could shave another half of a percentage point off the outlook for 2025.
Such an escalation in trade barriers would result “in global trade seizing up in the second half of this year… accompanied by a widespread collapse in confidence, surging uncertainty and turmoil in financial markets,” the report said.
Nonetheless, it said the risk of a global recession was less than 10%.
2 decades to recoup losses
The bank predicted that the U.S. economy – the world’s largest – would grow half as fast (1.4%) this year as it did in 2024 (2.8%). That marked a downgrade from the 2.3% U.S. growth it had forecast back for 2025 back in January.
The Chinese economy is forecast to see growth slow from 5% in 2024 to 4.5% this year and 4% next. The world’s second-largest economy has been hobbled by the tariffs that Trump has imposed on its exports, by the collapse of its real estate market and by an aging workforce.
U.S. and Chinese officials said on Tuesday they had agreed on a framework to get their trade truce back on track and remove China’s export restrictions on rare earths while offering little sign of a durable resolution to longstanding trade tensions.
The World Bank expects the 20 European countries that share the euro currency to collectively grow just 0.7% this year, down from an already lackluster 0.9% in 2024.
Trump’s tariffs are expected to hurt European exports. And the unpredictable way he rolls them out – announcing them, suspending them, coming up with new ones — has created uncertainty that discourages business investment.
India is once again expected to be the world’s fastest-growing major economy, expanding at a 6.3% clip this year. But that’s down from 6.5% in 2024 and from the 6.7% the bank had forecast for 2025 in January.
In Japan, economic growth is expected to accelerate this year – but only from 0.2% in 2024 to a sluggish 0.7% this year, well short of the 1.2% the World Bank had forecast in January.
The lender said emerging markets and developing economies were expected to grow by 3.8% in 2025 versus 4.1% in the forecast in January.
Poor countries would suffer the most, the report said. By 2027, developing economies’ per capita GDP would be 6% below pre-pandemic levels, and it could take these countries – minus China – two decades to recoup the economic losses of the 2020s.
Germany plans to gradually raise its retirement age beyond 67 and also abolish early retirement, as well as expand compulsory pension contributions under a set of new recommendations backed by Chancellor Friedrich Merz on Tuesday.
Germany, like many industrialized economies, is struggling with an ageing population and last year appointed an expert commission to come up with suggested reforms to its pension system.
Presenting its findings on Tuesday, the commission said the retirement age should be linked to life expectancy and gradually raised beyond 67 now.
It recommended abolishing a scheme that allows people to retire early at 63, and expanding compulsory pension contributions to include civil servants and self-employed workers.
“All elements of this reform package… must now be implemented swiftly,” Merz told a press conference, adding that “we cannot afford to remove or reject individual measures.”
Merz added that the proposals aim to meet “two goals: pensions remain secure, and the burdens are distributed fairly across all segments of society and across all generations.”
Opposition parties and unions have voiced criticism of some of the proposals, which had previously been published in German media.
The left-wing party Die Linke said that under the changes, people would be “working even longer, working even more.”
The trade union Verdi said the proposal to scrap the early retirement scheme showed “a total disregard for the lifetime achievements of the people concerned.”
The proposals must still be debated and voted on in parliament before becoming law.
In office for just over a year, Merz has struggled to deliver on his promises of sweeping reforms and a revival of Germany’s stagnant economy.
Tensions have brewed between Merz’s conservative CDU/CSU bloc, which has pushed for tougher welfare cuts, and their junior coalition partners, the centre-left Social Democrats (SPD).
However, the SPD on Tuesday also said it supported the pension recommendations, with Labor Minister Baerbel Bas declaring that she was “very confident” the reforms would be supported in parliament.
Around 19 million people in Germany were aged 65 or older, or about 23% of the total population in 2024, the latest year for which statistics are available.
In 1991, only 15% of the population was aged over 65.
Türkiye’s new deposit return system for beverage containers, which is set to launch as of next month, is expected to contribute about TL 30 billion ($645.44 million) annually to the economy while reducing waste and greenhouse gas emissions, the head of a leading environment agency said recently.
The Deposit Return System for Beverage Packaging, known by its Turkish acronym DOA, will be launched nationwide on July 1 as part of the Zero Waste initiative.
Under the system, consumers will be able to return plastic, glass and aluminum beverage containers bearing the DOA logo through designated return points or reverse vending machines and receive a refund of TL 1 per container through a mobile application.
Speaking to Anadolu Agency (AA), Turkish Environment Agency (TÜÇA) President Nurullah Öztürk said that the project is not only a recycling application but also a strategic transformation project with environmental, technological, industrial and economic dimensions.
He said that the system is among the world’s most comprehensive digital deposit-return programs.
“From producers to consumers, from return points to recycling facilities, the entire process is tracked digitally. In this way, we are creating both a transparent and reliable structure,” Öztürk said.
According to Öztürk, 1,148 reverse vending machines have already been installed across the country, with six domestic manufacturers producing the equipment used in the system.
The agency said a pilot program that began in Sakarya has expanded to 72 provinces and has already recovered more than 38 million beverage containers, including plastic, glass and aluminum packaging.
Türkiye consumes about 25 billion single-use beverage containers annually, Öztürk said.
“We aim for the system to contribute approximately 30 billion Turkish liras annually to the Turkish economy. We are creating a strong model that combines environmental benefits and economic gains,” he said.
The agency estimates the system could reduce greenhouse gas emissions by about 37,000 tons annually, save 1.3 billion kilowatt-hours of energy and prevent the use of 3.6 million barrels of oil.
Öztürk also said that increased recycling rates are expected to reduce imports of raw materials used in beverage packaging by between 35% and 40%.
The program includes participation from hotels, restaurants and cafes, with 853 businesses currently registered in the system and 304 manual return points operating nationwide. Twenty-three operators have been authorized to manage collection, transportation and verification processes.
Türkiye has finalized its approval process for a digital economy partnership agreement among members of the Organization of Turkic States (OTS), bringing the bloc closer to a new framework for digital trade and economic integration.
The law approving the ratification of the “Digital Economy Partnership Agreement among the Governments of the Member States of the Organization of Turkic States” was published in the country’s Official Gazette on Tuesday, the Trade Ministry said.
With the move, Türkiye became the third country after Azerbaijan and Uzbekistan to complete its internal approval process for the agreement.
The deal will enter into force after Kyrgyzstan and Kazakhstan also complete their domestic approval procedures.
The ministry said the agreement is designed to remove barriers to e-commerce, digital services and cross-border data-based economic activities among Turkic states, while establishing common rules for a more integrated and predictable digital economy framework.
It is also expected to strengthen commercial and technological integration across the Turkic world, support businesses’ access to digital markets, encourage the use of innovative technologies and increase regional competitiveness.
The agreement includes detailed provisions on preventing barriers to payments and money transfers, paperless trade, electronic transaction frameworks, logistics, electronic invoicing, express delivery services, electronic payments, national supplier databases, electronic signatures, commercial electronic messages, online consumer protection and personal data protection.
It also covers cooperation in small and medium-sized enterprises (SMEs), financial and technological fields, cybersecurity and competition policy.
The agreement was signed on Nov. 6, 2024, during the 11th Summit of the Organization of Turkic States in Bishkek, Kyrgyzstan, attended by President Recep Tayyip Erdoğan.
The ministry said the agreement would help Turkic states deepen cooperation based on shared values and contribute to global efforts to shape digital trade rules.
Pakistan’s role in facilitating a peace agreement during the U.S.-Iran war has earned it broad diplomatic praise, potentially opening doors to economic advantages. However, analysts doubt whether these benefits will be enough to address the issues within Pakistan’s economy.
Prime Minister Shehbaz Sharif and army chief Field Marshal Asim Munir attended talks between Iran and the U.S. in the Swiss town of Buergenstock last weekend, the culmination of Pakistan’s months-long role in one of the world’s most consequential diplomatic negotiations.
“This guy. What’s up, man?” U.S. Vice President JD Vance said upon seeing Munir in the resort town before giving the army chief a hug.
Both sides, along with several world leaders, have thanked Islamabad for helping ease a conflict that could have disrupted the Strait of Hormuz for a long period, choked global oil supplies and shattered the world economy.
The breakthrough has raised Pakistan’s profile and analysts say the country of 250 million people has an opportunity to convert that goodwill into some gains for an economy marked by decades of boom and bust.
But they said any benefits were unlikely to fix deeper structural issues, including social and economic inequity, a narrow tax base and repeated International Monetary Fund (IMF) bailouts.
Pakistan is targeting economic growth of 4.0% and inflation of 8.2% for the coming fiscal year, compared with 3.7% projected growth in fiscal 2026, which ends in June, and 6.7% average inflation in the July-May period of the outgoing year.
“A nation that delivers stability at home and helps advance stability abroad becomes a more credible destination for investment,” said Khurran Schehzad, adviser to Pakistan’s finance minister.
“A growth-oriented economic agenda, coupled with a reputation as a force for peace and stability, places Pakistan in a uniquely favorable position to attract investment into its people, infrastructure, technology and future growth sectors.”
Many analysts are expecting some largesse from the U.S., although there have been no signs of any such windfalls yet.
Alex Vatanka, senior fellow and director of the Iran program at the Middle East Institute in Washington, said one gain for Pakistan was the “huge potential to be a more integrated part of the broader Middle East,” and eventually forging broader economic partnerships in the region that would also encompass defense.
Another possibility was that sanctions relief on Iran could allow “huge trade between Iran and Pakistan,” particularly through their Balochistan land border, said Miftah Ismail, a former finance minister.
Seen this before
After the Sept. 11, 2001, attacks and the U.S. invasion of Afghanistan, alignment with Washington helped secure debt rescheduling from more than a dozen bilateral creditors, renewed support from the IMF and other multilateral lenders, and U.S. assistance. But Pakistan failed to take advantage because of structural weaknesses, analysts say.
Khurram Husain, an economic commentator and journalist, said the current situation was similar to post-9/11, but with one crucial difference: that moment came at “the start of a long ruinous war in which Pakistan had to play a frontline role,” while this time “Pakistan is playing the role of a peacemaker.”
That distinction means Pakistan’s leverage this time comes from being useful to multiple sides simultaneously – Washington, Tehran, Gulf states, Türkiye and China.
Former finance minister Ismail said the diplomatic role had enhanced Pakistan’s international prestige, but that had no effect on the high costs, weak exports and external repayments that keep it dependent on the IMF.
“Our house is in such disorder that foreigners can’t really help us unless we help ourselves,” he said. “Nothing here in this war changes that and we will be continually dependent on the IMF.”
Asim Ijaz Khawaja, a professor at Harvard University and director of the Harvard Center for International Development, said Pakistan should resist short-term financial concessions that do not raise productivity.
Instead, he said, Pakistan should seek academic exchanges and scholarships, preferential market access for textiles and IT services, technology transfer and green investment frameworks.
Hamish Falconer, Britain’s minister for the Middle East, thanked Islamabad for its peacekeeping role during a visit last week and told Reuters the U.K. saw “huge scope for deepening trade links” with Pakistan and that a British trade minister was expected to visit in the coming months.
‘Peace pivot’
Diplomats from two other Western countries have also said their governments are exploring strengthening economic ties following Islamabad’s peace efforts. They did not wish to be identified further.
Atif Mian, professor of economics, public policy and finance at Princeton University, said Pakistan should avoid treating diplomacy as another route to deposits, rollovers, or IMF-style relief.
The real prize, he said, was a “peace pivot” – external and domestic – built on regional trade, energy links with Iran, and deeper integration with the Gulf and Türkiye through exports, technology transfer and co-dependent industries.
Business activity in the eurozone remained in contraction territory in June, but it picked up pace compared to a month earlier, a key survey showed Tuesday, thanks to easing price pressures linked to the Middle East war.
The eurozone purchasing managers’ index (PMI) published by S&P Global, an important gauge of the economy’s overall health, registered a reading of 49.5 this month – a three-month high – after 48.5 in May.
A reading above 50 indicates growth, while a figure below 50 signals contraction.
“The eurozone economy is showing enough resilience to just about stay out of recession,” S&P chief business economist Chris Williamson said in a note.
“The flash PMI registered only a slight drop in business activity in June, meaning the survey is indicative of unchanged GDP over the second quarter,” he said.
After a preliminary peace deal between Iran and the United States, the tourism industry hopes for a rebound with more visitors expected to return later in the year to the Middle East and the nearby region, including the island of Cyprus and Türkiye.
“There is welcome news of an easing in the recent downturn in services activity, with tourism and leisure-related industries seeing signs of recovering demand after the initial disruptions from the war in the Middle East,” he added.
That fledgling recovery was, however, accompanied by “sustained falls” in new business, the survey found.
Manufacturing activity continued to grow, recording a figure of 51.3 in June, below the 51.6 recorded last month.
The overall picture appeared better than in previous months after the war in the Middle East triggered a surge in energy costs worldwide.
Household inflation expectation in Türkiye improved slightly in June, while those of market participants and the real sector remained broadly unchanged, a survey published by the country’s central bank showed on Monday.
According to the Central Bank of the Republic of Türkiye (CBRT), 12-month ahead annual inflation expectations of households decreased 3.38 percentage points to 46.13%.
Moreover, for June 2026, 12-month ahead annual inflation expectations decreased by 0.01 points compared to the previous month for market participants, falling to 23.81%. For the real sector, the figure remained unchanged at 33.10%.
The 12-month ahead expectations among the household category were recorded at the lowest level this year, marking an improvement from 51.56% in April and 49.51% in May, according to the CBRT survey.
Turkish officials had often in the past emphasized rigidness in inflation expectations, particularly among households, while also indicating that the improvement in inflation expectations contributes to the disinflation process.
The disinflation process has, however, slowed down in the face of rising energy prices following the start of the U.S.-Israel-Iran war in February.
The consumer price index (CPI) increased 32.6% from a year ago in May, up from 32.4% in April, official data showed earlier this month.
CBRT raised its year-end interim inflation target to 24% from 16% last month, while at the time warning that the short-term inflationary effects of the Iran war would remain “pronounced.”
The bank, in its last monetary policy committee (MPC) meeting, also decided to keep rates on hold, at 37%, citing that it is closely monitoring “the impact of geopolitical developments on the inflation outlook.”
The bank thus joined many of the global peers, including the Federal Reserve (Fed) and the Bank of England (BoE), which similarly opted to keep rates unchanged, while following the effects of the war.
Yet, the recent breakthrough in talks between the U.S. and Iran has resulted in oil prices easing to pre-war levels, boosting the sentiment in global markets and providing a sign of relief for importing countries.
Earlier this month, while pledging that the government’s disinflation stance remains “firm,” Treasury and Finance Minister Mehmet Şimşek said that inflation this year might be in the “mid-20s, if not high 20s.”
The banking giant BBVA, in its research published last week, said it expects the disinflation process “to remain broadly on track” against a softer growth backdrop in the short term.
“Persistent inflationary pressures and external uncertainties warrant a more cautious policy outlook, while selective easing is likely to continue within an overall restrictive policy mix,” it added.
In a statement on Monday, evaluating the survey, Şimşek reiterated they “continue to work with determination in line with our disinflation target.”
The escalation of geopolitical developments in increasing energy prices has created downward pressure on the short-term inflation outlook, negatively affecting expectations, he said in a post on the social media platform X.
“By utilizing the fiscal space we created through our program, we swiftly and effectively implemented the necessary measures, particularly the sliding scale mechanism, to prevent a permanent deterioration in expectations,” he added, referring to a special system limiting the increase in fuel prices to be passed onto consumers.
He also cited that in June, household inflation expectations for 12 months ahead “improved by 3.4 points compared to the previous month.”
“We expect the normalization of energy prices, as geopolitical tensions ease, to support the improvement in expectations,” he noted.
Speaker of the Turkish Grand National Assembly Kurtulmuş in Baku: “Global developments provide opportunities for the Turkish world”
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Speaker of the Turkish Grand National Assembly Kurtulmuş in Baku: “Global developments provide opportunities for the Turkish world”
Özel calls Turkish opposition leader to hold intra-party election
Minister Tekin received the Ambassadors of Russia and Egypt in Ankara
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