Turkish growth slows – and it’s not just the war to blame

• GDP up 0.1% quarter on quarter
• Exports slumped in first 3 months
• Access to finance a problem

Turkey’s economy came close to stalling in the first quarter as its manufacturers were buffeted by disruption linked to the Gulf conflict and deeper structural challenges.

GDP expanded by just 0.1 percent quarter on quarter in January to March, according to data released by the statistics agency TurkStat on Monday.

Year-on-year growth slowed to 2.5 percent, from 3.4 percent in the final quarter of 2025, as exports slumped and industrial output weakened.

On the back of good seasonal rains and mild temperatures, Turkish agriculture rebounded strongly in the quarter, shaking off the impact of three years of drought to expand by 4.6 percent year on year. The information and communications sector grew by 9.5 percent.

However, this was offset by a 0.8 percent drop in the industrial sector.

Exports of goods and services fell 12 percent in the first three months of the year compared with Q1 2025, while imports declined by 2 percent.

Manufactured goods account for almost 95 percent of Turkey’s exports, leaving the economy particularly exposed to any slowdown in overseas demand.

But Serap Durusoy, an economist at Abant İzzet Baysal University, said the weakness in industry could not be explained by the conflict alone, pointing to longer-term structural challenges.

“The war is a factor, and we do not know how long it will continue,” she told AGBI. “However, just considering the problem to be the war would be a myopic viewpoint as there are long-term problems for industries, such as being unable to access finance.”

Continued contraction in the industrial sector would also lead to a rise in unemployment – currently running at 8 percent – said Durusoy.

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There was one ray of hope for Turkish manufacturers, with the latest Istanbul Chamber of Industry-S&P purchasing managers’ index (PMI) pointing to some signs of recovery.

The index, also released on Monday, lifted from 45.7 points in April to 49.8 in May – close to the 50-point mark that separates growth from contraction.

The rate of decline has moderated, with the PMI at its highest since March 2024. New export orders increased for the first time in 20 months.

However, Andrew Harker, economics director at S&P Global Market Intelligence, cautioned that a sustained recovery would depend on broader demand conditions.

“Much will likely depend on whether total new orders can join exports in growth territory in the months ahead,” he said in comments accompanying the PMI report.