Turkey’s Medium-Term Program and Its Impact on GDP Growth and Monetary Policy: Assessing Investment Potential Amid Inflation Easing and Structural Reforms

Turkey’s Medium-Term Program (MTP) for 2025–2027 represents a critical juncture in the country’s economic strategy, balancing the need for macroeconomic stabilization with structural reforms to unlock long-term growth. As global markets grapple with geopolitical tensions and shifting supply chains, Turkey’s approach to managing inflation, fiscal discipline, and productivity challenges offers both opportunities and risks for investors. This analysis evaluates the interplay between Turkey’s MTP, monetary policy adjustments, and their implications for GDP growth and foreign direct investment (FDI).

Structural Reforms and Macroeconomic Stabilization

The 2025 MTP, aligned with the World Bank’s Türkiye Country Partnership Framework (CPF) and the OECD’s 2025 Economic Survey, prioritizes structural reforms to address persistent weaknesses such as low productivity growth and weak labor market participation. The program’s focus on high and sustainable productivity growth, inclusive job creation, and disaster resilience underscores a shift toward long-term economic convergence [1]. However, the OECD cautions that progress remains uneven, with challenges like rising greenhouse gas emissions and low female labor force participation (at 27.6% in 2024) hindering potential [2].

The government’s alignment with the 12th National Development Plan (2024–2028) signals a commitment to structural reforms, including public finance improvements and green transformation. These efforts are critical for attracting FDI, which has historically been sensitive to policy uncertainty. For instance, while FDI inflows reached $6.3 billion in the first half of 2025—a 27% increase year-to-date—manufacturing investment has declined to 25% of total inflows, down from 35% in 2024, as capital shifts toward bonds and financial assets [3]. This trend reflects both the CBRT’s high interest rate environment and global investors’ risk aversion amid geopolitical volatility.

Monetary Policy and Inflation Dynamics

The Central Bank of Turkey (CBRT) has adopted a tightening cycle to curb inflation, which peaked at 75% in May 2024 but eased to 33.52% by July 2025—the lowest rate since November 2021 [4]. The CBRT’s aggressive rate hikes, including a 350-basis-point increase to 46% in April 2025, were driven by political tensions and market volatility following the arrest of Istanbul Mayor Ekrem Imamoğlu. While these measures stabilized the lira and anchored inflation expectations, they also raised borrowing costs for businesses, particularly exporters facing declining real incomes due to exchange rate fluctuations [5].

The CBRT’s revised monetary policy framework now sets interim inflation targets of 24% for 2025 and 16% for 2026, signaling a phased easing cycle. A 300-basis-point rate cut in July 2025, reducing the one-week repo rate to 43%, reflects this shift. The Istanbul Chamber of Commerce (ITO) anticipates further rate cuts by year-end, which could alleviate financing pressures on firms and support investment in sectors like manufacturing and infrastructure [6]. However, the CBRT’s caution—maintaining high rates until underlying inflation declines—highlights the delicate balance between inflation control and growth stimulation.

Investment Potential Amid Structural and Geopolitical Risks

Turkey’s investment landscape remains complex. On one hand, the MTP’s emphasis on employment growth (which outperformed 2024–2026 targets) and infrastructure projects, such as the citizenship by investment program’s $400,000 real estate threshold, provides avenues for capital inflows [7]. On the other, structural weaknesses and global risks—such as protectionist policies and energy price shocks—pose headwinds. For example, Hapag-Lloyd and Siemens Gamesa recently exited Turkey due to rising costs and supply chain shifts, illustrating the fragility of foreign investment in a high-inflation environment [3].

The OECD and IMF both stress that Turkey’s long-term growth hinges on structural reforms, including labor market liberalization and green investments. These reforms could enhance productivity and attract FDI in sectors like renewable energy and technology. However, political uncertainties and inconsistent policy implementation remain barriers. Investors must weigh the CBRT’s inflation-fighting resolve against the government’s capacity to execute structural reforms effectively.

Conclusion

Turkey’s MTP and monetary policy adjustments present a mixed outlook for investors. While inflation easing and a potential rate-cutting cycle may improve business confidence, structural challenges and geopolitical risks necessitate a cautious approach. The CBRT’s dual focus on disinflation and gradual easing, coupled with the government’s alignment with international development frameworks, offers a foundation for sustainable growth. However, the success of Turkey’s economic strategy will ultimately depend on the pace of structural reforms and the resilience of global capital flows in an uncertain macroeconomic climate.

Source:
[1] Turkey Overview: Development news, research, data [https://www.worldbank.org/en/country/turkey/overview]
[2] OECD Economic Surveys: Türkiye 2025 [https://www.oecd.org/en/publications/oecd-economic-surveys-turkiye-2025_d01c660f-en.html]
[3] Rising costs and shifting markets hit foreign companies in ... [https://www.agbi.com/analysis/economy/2025/08/rising-costs-and-shifting-markets-hit-foreign-companies-in-turkey/]
[4] Turkey Inflation Rate [https://tradingeconomics.com/turkey/inflation-cpi]
[5] Istanbul Chamber Sees CBRT Cutting Rates by 1000 BPS by Year-End [https://www.dailysabah.com/business/economy/istanbul-chamber-sees-cbrt-cutting-rates-by-1000-bps-by-year-end]
[6] Turkish Cenbank Returns to Easing with Big 300-Point Rate Cut [https://duke.fm/2025/07/24/turkish-cenbank-returns-to-easing-with-big-300-point-rate-cut/]
[7] Turkey CBI Approved Projects 2025 [https://citizenx.com/insights/turkey-cbi-approved-projects/]