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.
Exports from Türkiye’s defense and aerospace sectors have exceeded $2.8 billion in the first four months of the year, jumping 28% from the same period last year, a top official said Wednesday.
Speaking to reporters at the SAHA 2026 International Defense and Aerospace Exhibition in Istanbul, Trade Minister Ömer Bolat said exports had climbed from $248 million over the past two decades to $10.05 billion last year alone.
“This year, we have a 28% increase in the first four months. We topped $2.8 billion,” Bolat said, recalling that last year the sector passed the $10 billion export threshold for the first time.
The defense fair, organized by SAHA Istanbul, Türkiye’s and Europe’s largest industrial cluster in the defense, aviation and space sectors, is being held at a wide area of Istanbul Expo Center and it runs through Saturday.
Bolat described SAHA 2026 as one of Türkiye’s most advanced fairs in industry and technology, saying the event showcases the country’s strongest products in industry, technology, science and telecommunications.
He said the fair, which has “prestigious fair” status supported by the Trade Ministry, has filled its entire exhibition area of 100,000 square meters (over 1 million square feet).
Some 8,000 professional visitors from abroad registered for the event, while more than 100 delegations are holding procurement talks, according to Bolat.
“More than $10 billion in contracts are expected to be signed by our companies. This is a very valuable fair for the Turkish industry, defense industry, and aviation industry,” he furthered.
Strong demand for Turkish products
Bolat also pointed out that Türkiye’s defense and aviation ecosystem includes 3,500 companies and nearly 100,000 highly qualified workers and research and development personnel.
He added that the sector “has a project backlog worth $100 billion,” while it “contributes $20 billion to Türkiye’s national income.”
“Major brand organizations in the main structure have thousands of companies below them producing products. In this sense, Türkiye is ensuring a brain gain for our country from abroad,” he said.
Bolat also said there is strong foreign demand for Turkish defense and aviation products.
He said he met Stephen Fuhr, Canada’s minister of state for defense procurement, who visited the fair with a strong delegation. “He expressed they came here to increase cooperation with Türkiye in defense and aviation, both at the government level and company level,” he added.
Military officials, procurement executives, and experts from many countries are attending the fair, Bolat suggested.
Moreover, he said Türkiye exported $3.7 billion worth of rockets, missiles, and smart munitions last year, as well as $2.1 billion worth of unmanned aerial vehicles (UAVs).
Türkiye is also strong in land vehicles and has made progress in areas including air defense systems and “Steel Dome”-type systems, Bolat said.
The fuel tax relief mechanism Türkiye introduced to cushion households and businesses from an energy shock triggered by the Middle East conflict has cost the government around $2 billion in its first two months of implementation, a senior official said on Tuesday.
Energy prices spiraled following U.S.-Israeli attacks on Iran, which prompted a near-total closure of the Strait of Hormuz, where 20% of the world’s oil normally flows. Stalled shipments through the waterway have sent prices skyrocketing far beyond the region and raised the cost of food and a wide array of other products.
To mitigate the impact, Turkish authorities implemented a “sliding scale” system, which adjusts the special consumption tax (OTV) on fuel products according to changes in oil prices to prevent excessive price rises.
Treasury and Finance Minister Mehmet Şimşek said the mechanism had limited the pass-through from higher crude oil prices to domestic fuel prices and helped contain inflation.
“The cost to us in the first two months was TL 90 billion. This is a significant figure, around $2 billion,” Şimşek told the public broadcaster TRT Haber.
“If similar conditions persist throughout the year, the impact would be around TL 600 billion, corresponding to roughly $13 billion-$14 billion at current prices,” he said.
Without the measure, however, Şimşek said inflation would have risen much more sharply.
“Had we not activated the sliding scale mechanism, the increase in inflation would have been far more dramatic. The current reflection is not even at one-third. Therefore, we have also limited the rise in inflation,” he said.
The pricing pressures from the fallout of the war still impacted Türkiye’s inflation, which rose to 32.37% in April, the highest measure since October 2025. Şimşek said the rise would be temporary.
Had it not been for the sliding scale system, diesel prices in Türkiye could have reached as high as TL 90 per liter, compared with below TL 73 now, while gasoline prices would have been around TL 79 lira instead of roughly TL 65, the minister noted.
“A significant portion of the shock has not been passed on to our citizens, companies, industrialists or small businesses,” Şimşek said.
Effects ‘manageable’
Türkiye is a major energy importer that neighbors Iran and is among the most exposed emerging market economies to the global energy price surge. But officials have touted Türkiye’s “manageable” 10% dependence on Middle East oil and the country’s protective diversification steps.
Şimşek said Türkiye was facing the effects of the supply shock, though he stressed the country was not facing an energy supply disruption.
“The increase in fuel prices will cause an additional deficit in the external balance. It has an inflationary effect. All of these are facts. We are not on a separate planet,” he noted.
“There is a very large supply shock in the world, and this will affect Türkiye.”
Every 10% increase in oil prices directly adds around 1.1 percentage points to inflation and lifts the current account deficit by $3 billion-$4 billion, while a similar rise in natural gas prices could add another $5 billion, said Şimşek.
“If oil rises to $95 from $65, that would create an additional deficit of around $15 billion,” he said. “This doesn’t include tourism, but let me say this clearly: the effects will be manageable.”
Şimşek said the government’s improved fiscal position had enabled it to absorb part of the shock.
“Had we not restored fiscal discipline, implemented savings measures and controlled spending, we would not have had the ability to do this,” he said.
He reiterated that the government’s top priority remained disinflation and tackling the cost of living.
“We want to preserve the disinflation process at all costs,” Simsek said. “There is no hesitation on this matter.”
He said Türkiye had initially expected inflation to fall to around or below 20% this year, but the latest energy shock could keep it somewhat higher.
He said the budget deficit could rise from 3.5% to 4% of gross domestic product, while a 1-2 percentage point increase in the current account deficit-to-GDP ratio would remain manageable.
Simsek said Türkiye had entered the regional crisis from a stronger position, citing a significant buildup in foreign exchange reserves since mid-2023.
“We have accumulated very substantial reserves, which also helped us get through this shock without really feeling its impact,” he noted.
“This year, we are aiming to focus strongly and bring inflation back down to the 20s.”
Turkish drone powerhouse Baykar on Wednesday signed an agreement to sell its Bayraktar Kızılelma unmanned combat aircraft to Indonesia.
The deal marks the first export contract for what Baykar CEO Haluk Bayraktar said is one of the world’s first unmanned fighter jet technologies.
It covers a delivery of a fleet of 12 Kızılelma aircraft, starting in 2028. The agreement also includes an additional option for four more fleets, Bayraktar told the signing ceremony at the SAHA 2026 defense fair.
Alongside system procurement, the deal also includes the establishment in Indonesia of production and maintenance centers.
The agreement was signed by Bayraktar and Norman Joesoef, chair of Indonesian defense group Republikorp.
Bayraktar described the agreement as a “historic” deal for both Baykar and Türkiye’s defense industry.
“Bayraktar Kızılelma, one of the world’s first unmanned fighter jet technologies, made its first flight in 2022. Since then, intensive flight activities have continued,” he said.
Baykar aims to place Kızılelma into service for Türkiye this year, he added.
Kızılelma would be the third Baykar platform Indonesia will add to its portfolio following earlier deals for Bayraktar Akıncı and TB2 drones.
Republikorp’s Joesoef said the company looked forward to continuing cooperation between the two sides.
Kızılelma will stand out with its low radar visibility and high maneuverability. With a maximum takeoff weight of 8.5 tons and a payload capacity of 1.5 tons, the aircraft can preserve its stealth characteristics thanks to its internal weapons bay.
The jet is said to be the first unmanned combat aircraft in the history of aviation to shoot down an aerial target detected by its own radar system (AESA) using its own domestically produced air-to-air missile.
With AI-supported autonomous formation flight and smart fleet operations, it is seen shaping the future doctrine of aerial warfare.
Separately at the SAHA fair, Turkish defense electronics company Aselsan signed two contracts with Indonesian authorities covering the use of its technologies by Indonesia’s military.
The agreements include unmanned naval vehicle payloads for the Indonesian Navy and mission-critical communication systems for the Indonesian Armed Forces.
Oil prices tumbled and stocks surged on Wednesday after a report said the White House believed it was nearing a memorandum to end the war with Iran, while enthusiasm for AI-driven trades also gathered pace.
The news outlet Axios reported that the U.S. expected Iranian responses on several key points in the next 48 hours. A Pakistani source involved in the peace efforts confirmed the report to Reuters on Wednesday.
Brent crude, the global benchmark, plunged 10.6% to $98.20 per barrel, its lowest in two weeks.
The war has all but closed the Strait of Hormuz, through which 20% of global energy normally flows, but Axios reported the deal would involve both sides lifting restrictions around transit through the waterway.
Europe’s STOXX 600 index extended its gains and was last up 2.6% after climbing 0.7% a day earlier. MSCI’s All-Country World Index climbed 0.9% to a fresh record.
Futures for the U.S. S&P 500 rose 0.9%, a day after the index rallied 0.8% to hit its latest record high, driven by strong company earnings and excitement about artificial intelligence.
“A pretty punchy move on the back of those stories, almost as if the market has shifted into ‘buy everything’ mode,” said Michael Brown, senior research strategist at Pepperstone.
“It’s difficult to say how close to a deal we might be,” he said. “Market participants, though, aren’t going to wait for confirmation of good news and are essentially now front-running a positive outcome.”
Caution
The U.S. dollar, which has been a safe haven during the Iran war, dropped 0.55% against its major peers, reflecting investor hopes for a possible deal.
Meanwhile, yields on government bonds fell along with oil prices as traders dialled down their bets on central bank rate hikes.
The 10-year U.S. Treasury yield fell 7 basis points to 4.35%.
Although stocks have rallied sharply, ructions in energy and bond markets could weigh on global growth. Oil prices are around 35% higher than they were when the conflict began in late February, while 10-year Treasury yields are around 40 bps higher.
Analysts also cautioned that a peace deal is far from certain.
“The probability of disappointment looms,” said Ipek Özkardeskaya, senior analyst at Swissquote, “suggesting that a part of the gains could be retraced.”
AI rally boosts stocks
The broadest index of Asia-Pacific shares outside Japan jumped 3.2%.
Samsung Electronics surged 14%, topping a $1 trillion market value and overtaking Berkshire Hathaway.
“Due to the capex spend we are seeing from (AI) hyperscalers in the U.S., the earnings growth trajectory for sectors such as semiconductors, tech hardware, industrials and materials in Asia exceeds anything I have seen in a long time,” said Rushil Khanna, head of equity investments for Asia at Ostrum, an affiliate of Natixis Investment Managers.
In the U.S., shares in chipmaker Advanced Micro Devices jumped 16% in extended trading as the company forecast second-quarter revenue above Wall Street expectations on Tuesday, helping drive AI enthusiasm across markets.
Elsewhere in foreign exchange markets, the yen strengthened sharply, gaining as much as 1.8% to 155 against the dollar as traders remained on the lookout for fresh intervention by authorities in Tokyo in support of the beleaguered currency.
Aselsan, one of Türkiye’s top defense firms, will accelerate deliveries of the components it is producing for the country’s integrated, multilayered “Steel Dome” air defense system, according to the company’s general manager.
NATO member Türkiye, which in recent years has significantly ramped up its defense industry production and reduced dependence on external suppliers, first announced plans to build its Steel Dome in July 2024.
Speaking at the SAHA 2026 defense show in Istanbul, Aselsan General Manager Ahmet Akyol said the company would increase by 50% the delivery of products as part of the Steel Dome, adding they aimed to deliver more than 150 different components in 2026.
He said the parts to be delivered by Aselsan included early warning radars, electronic combat and defense systems and payloads, adding that the Steel Dome parts would comprise nearly a third of the firm’s portfolio in the coming years.
The architecture crowns years of investments that have helped Türkiye transform from a nation heavily reliant on equipment from abroad to one where homegrown systems meet almost all of its defense industry needs.
It foresees integration of locally developed missile batteries, radars, electro-optical sensors, communications modules and command-and-control centers.
It aims to provide integrated protection against low, medium and high-altitude threats through land-based and sea-based air defense platforms and sensors developed at home.
Last year, Turkish defense companies signed $6.5 billion (TL 293.95 billion) worth of contracts to reinforce and develop the Steel Dome. Of those, Akyol said some $3.2 billion worth belonged to Aselsan, adding the company would also work on systems to counter drones.
“At the moment, drone prevention is an issue everywhere in the world. Don’t look at this only as defense; it is necessary for industrial security. Drones are a threat even in regions with no problems,” Akyol told Reuters.
Akyol also said Aselsan would aim to speed up the company’s export-oriented growth in 2026. Aselsan hit a TL 2 trillion market cap, extending its lead as the most valuable company on Istanbul’s stock exchange.
“We are aiming to close the year with a higher number of export contracts than last year. Our export order growth and delivery goal is higher than double-digit growth for Aselsan as a whole,” he said.
Components for the Steel Dome also form the backbone of the parts in Türkiye’s indigenously built navy fleet, with currently more than 40 ships under construction.
Akyol added that Aselsan was a supplier for shipyards in Asia and Europe and that cooperation would increase in the coming years.
Türkiye’s defense exports rose about 48% year-over-year in 2025 to a record of more than $10 billion. The goal is to lift the figure to $11 billion, placing Türkiye among the world’s top 10 biggest defense exporters, according to officials.
Türkiye is emerging as a notable player in efforts to diversify global critical minerals supply chains, backed by its resource base and strategic location, according to a senior official from the Organisation for Economic Co-operation and Development (OECD).
“Türkiye is already an important player in critical minerals,” Marion Jansen, the director of the Trade and Agriculture Directorate at OECD, told Anadolu Agency (AA) on the sidelines of the OECD Critical Minerals Forum in Istanbul.
Jansen highlighted Türkiye’s strength in borates as a major global supplier and noted that the country also holds significant reserves of rare earth elements (REEs). “So this is one of the countries where more investment could take place.”
She noted that Türkiye could play an important role in diversifying critical minerals supply chains and added that its geographic position makes it well placed to facilitate the logistics and transit of critical minerals from different regions.
“Türkiye is situated between Asia, Africa and Europe. This is a fantastic trading hub,” she said.
The country established the Rare Earth Elements Research Institute in 2020 to explore the potential of critical minerals and, in 2022, discovered the world’s second-largest rare earth element reserve in the central province of Eskişehir, giving further momentum to its development in this area.
Risks drive push for diversification
As Türkiye is part of the OECD’s export credit arrangement, it has a role in coordinated international financing efforts. “Türkiye has a voice in this joint collaboration around export credit financing,” Jansen said.
She noted that Türkiye is well integrated into global markets and has the potential to expand its role further. “The potential for Türkiye to play an even bigger role definitely exists,” she added.
Jansen said rising interest in financing the green transition has brought structural risks in critical minerals markets into sharper focus. “The key aspect is diversification.”
As demand for minerals critical to the energy transition, digitalization and defense industries rises, supply remains concentrated among a limited number of countries.
Many critical mineral markets are highly concentrated, with some cases where a single country accounts for up to 90% of global supply, either in extraction or processing.
“This is not good,” she said, warning that excessive concentration distorts markets and prevents normal price formation.
She added that high entry barriers limit new participants, while dominant players may restrict access to materials. “So diversification is important,” she noted.
Jansen stressed that financing mining and processing projects will be essential to improving supply diversity, pointing to OECD’s work in this area, including through export credit mechanisms.
Export restrictions threaten multilateral trade system
Jansen also warned about the increasing use of export restrictions globally.
According to OECD data, export restrictions have increased steadily over the past 15 years, with a notable rise in the most severe measures. The use of such measures increased nearly fivefold between 2009 and 2024 and remains at historically high levels.
“It becomes nearly acceptable to use it and that’s not good news for the multilateral trading system at all,” she said.
Export prohibitions are “used more and more frequently, and this is the third piece of bad news for the trading system of critical raw materials,” she explained.
Investment faces long-term uncertainty
Investment in critical minerals remains challenging due to long project timelines and market uncertainty, Jansen said.
“Investing in this sector is a long-term project … the money has to be invested for the long run,” she said.
She noted that investors seek clarity on returns and price conditions, but risks are higher in concentrated markets.
“If market conditions are not competitive … the risk that prices will be volatile is real,” she said.
Jansen added that addressing these challenges will be key to unlocking more investment in the sector.
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