Turkey’s Economic Outlook in 2025: Lower Country Risk but Persistent Financial Pressures
Fragile Economic Stabilization
Turkey has recently seen a decline in its country risk premium, thanks to a significant improvement in external accounts. A lower current account deficit and recovering forex reserves have contributed to a gradual return to macroeconomic stability. However, economic challenges remain, with persistent inflation and currency depreciation weighing on investor confidence.
Lower Economic and Fonancial Risk
Since mid-2023, Turkey’s country risk premium has been on a downward trend, reaching 438 basis points in Q4 2024. This reflects progress in stabilizing monetary conditions and macroeconomic fundamentals. However, political and governance risks remain high, limiting the overall improvement in risk perception.
Key improvements in economic and financial risk include:
- A contained current account deficit
- Lower external debt servicing costs
- Partial recovery in forex reserves
- Persistent currency undervaluation
Despite these gains, business conditions remain weak, and inflationary pressures continue to weigh on growth prospects.
Disinflation and Monetary Easing
Since June 2024, Turkey has been undergoing a disinflation process. Inflation dropped from 44.4% at the end of 2024 to 39.1% in February 2025, its lowest level in nearly two years.
➡️ In response, the Central Bank of Turkey (CBRT) cut its policy rate by 250 basis points in March 2025, bringing the one-week repo rate down to 42.5%.
Despite monetary easing, concerns remain over price rigidity and risks to sustained disinflation, particularly as wages and indexed prices continue to fuel inflationary pressures
Weak Growth and Turkish Lira Pressures
Turkey’s GDP grew by 2.9% in 2024, down from 5.1% in 2023, due to:
- Persistent inflationary pressures
- High interest rates restricting credit and investment
- External headwinds impacting trade
Domestic demand slowed throughout the year, and while government stimulus measures helped prevent a sharper contraction, growth remains lackluster.
At the same time, the Turkish Lira (TRY) continues to depreciate. After losing nearly 20% in 2024, the USD/TRY exchange rate reached 36.7 in March 2025, with further depreciation projected to 41.7 by Q4 2025.
Conclusion
Turkey has made notable progress in stabilizing its external accounts, but monetary, inflationary, and political risks persist. Investors remain cautious as monetary easing and political uncertainty weigh on Turkey’s financial markets.