Turkey’s Resilient Economic Growth Amid High Inflation and Monetary Tightening: Assessing Investment Opportunities in Export-Driven Sectors and Reconstruction Recovery

Turkey’s economy in 2025 is a study in contrasts: high inflation persists at 24% year-on-end, while the Central Bank of the Republic of Türkiye (CBRT) maintains a 50% interest rate to curb monetary inflation [1]. Yet, amid these headwinds, the country’s export-driven sectors—particularly construction and green technologies—are showing surprising resilience. This duality presents a complex but compelling investment landscape, where reconstruction efforts post-2023 earthquakes and strategic pivots to global markets are reshaping Turkey’s economic trajectory.

Reconstruction as a Catalyst for Export Growth

The 2023 earthquakes devastated Turkey’s infrastructure, but they also unlocked a $2.6 billion investment pipeline from the European Bank for Reconstruction and Development (EBRD), with 60% allocated to green projects [3]. This funding has accelerated demand for resilient construction materials, such as steel and rebar, which are now increasingly exported as domestic reconstruction demand wanes. For example, Turkish rebar exports surged by 28.2% in the first half of 2025, with Yemen and Romania emerging as key markets [4]. This shift underscores a broader trend: as local demand stabilizes, Turkish producers are pivoting to international markets to sustain growth.

The government’s 2025 Public Investment Program, allocating TRY1.9 trillion ($46.2 billion) to infrastructure projects, further reinforces this momentum. Sectors like transportation and energy are prioritized, with projects such as the Istanbul New Airport and Marmaray rail system expected to improve logistics and reduce trade costs [2]. However, these initiatives remain vulnerable to funding shortfalls and political instability, which could disrupt long-term gains.

Navigating Inflation and Monetary Tightening

Turkey’s inflationary pressures, though easing, remain a critical challenge. Core inflation remains stubbornly high at 12% month-on-month, forcing the CBRT to maintain restrictive monetary policies [3]. This environment has eroded margins in energy-intensive industries, such as steel production, where energy costs and currency depreciation have compounded financial strain [1]. Yet, the government’s fiscal consolidation efforts—coupled with a 3.5% year-on-year increase in goods exports during January-May 2025—suggest a cautious optimism about macroeconomic stabilization [3].

The push toward renewable energy adds another layer of complexity. With a target of 61% renewable energy use by 2035, Turkey aims to reduce its reliance on imported fossil fuels and position itself as a green technology exporter [3]. This aligns with European supply chain integration but faces hurdles, including a 35% inflation rate and a 11.35% depreciation of the Turkish lira against the dollar, which threaten competitiveness [1].

Geopolitical and Trade Challenges

While Turkey’s strategic location offers access to European and Middle Eastern markets, geopolitical tensions pose risks. The return of Donald Trump to the U.S. presidency has raised concerns about potential trade restrictions, while Syria’s recent 30% import tariff hike threatens Turkish rebar exports [4]. Additionally, the Turkish government’s official suspension of direct trade with Israel in May 2024 has not curtailed indirect exports, with $393.7 million in goods exported to Israel in early 2025 via third countries or the Palestinian territories [2]. This workaround highlights the adaptability of Turkish exporters but also underscores the fragility of trade relationships in a volatile region.

A Mixed Outlook for Key Sectors

The construction sector, buoyed by government-led projects, is projected to grow by 4.2% in real terms in 2025 [2]. Employment in the sector surged by 6.7% year-on-year in Q2 2025, though labor costs rose by 47.7%, signaling inflationary pressures [4]. Meanwhile, the steel industry has seen a 13.9% year-on-year increase in exports of steel products, reaching 8.8 million tons in January-July 2025 [1]. These figures suggest that while domestic demand is stabilizing, export markets remain critical for sustaining growth.

However, green technology sectors face a more uncertain path. While the EBRD’s Industrial Decarbonisation Investment Platform (TIDIP) supports long-term opportunities, global trade barriers and higher tariffs on certain exports could dampen short-term gains [3]. Investors must weigh these risks against Turkey’s renewable energy ambitions and its potential to become a regional hub for green innovation.

Conclusion: Balancing Opportunities and Risks

Turkey’s economic resilience in 2025 is a testament to its ability to adapt to crises, from earthquakes to inflationary shocks. For investors, the key lies in identifying sectors that can leverage reconstruction demand and export potential while mitigating macroeconomic and geopolitical risks. The construction and steel industries offer immediate opportunities, particularly in markets like Yemen and Romania, while green technologies present long-term growth prospects aligned with global sustainability trends. However, success will depend on navigating Turkey’s volatile inflationary environment, currency pressures, and the geopolitical dynamics of its trade partners.

Source:
[1] Turkey's Industrial Sector: Navigating Volatility and Recovery [https://www.ainvest.com/news/turkey-industrial-sector-navigating-volatility-recovery-fragmented-landscape-2508/]
[2] Turkey's Exports to Israel - 2025 Data [https://tradingeconomics.com/turkey/exports/israel]
[3] Turkey's Green Dawn: Renewable Energy and Earthquake Recovery [https://www.ainvest.com/news/turkey-green-dawn-renewable-energy-earthquake-recovery-create-strategic-investment-opportunities-macroeconomic-stabilization-2505/]
[4] Export Opportunities Crucial for Turkish Mills in 2025 [https://www.argusmedia.com/en/news-and-insights/latest-market-news/2648574-export-opportunities-crucial-for-turkish-mills-in-2025]