Turkey's political and economic outlook in late 2025

Turkey entered 2025 with President Recep Tayyip Erdoğan still the dominant figure in national politics, yet presiding over a country whose sources of strength are mixed: impressive hard-power and industrial momentum; a resilient, diversified real economy powered by tourism and exports; and a diplomatic posture that extracts leverage from geography. Countervailing that are persistent inflation, a high—though improving—cost of capital, and political headwinds in the big cities that matter most for investment and international image.

Politically, Erdoğan retains the advantages of the executive presidency he fashioned after 2017: control over the centre, close coordination with the nationalist MHP, and a powerful state apparatus. But the March 2024 local elections punctured the aura of inevitability. The opposition CHP not only held Istanbul and Ankara; it expanded its map, capturing a swathe of additional provinces and the metropolitan councils that come with them. Istanbul’s Mayor Ekrem İmamoğlu and Ankara’s Mansur Yavaş now govern with stronger mandates, shaping urban policy for much of the country’s GDP and setting up credible rivals for elections in 2028. The vote tally was a rare nationwide setback for the AKP after two decades, and it has forced introspection inside the ruling camp. 

In foreign and security policy, Ankara has parlayed transactional pragmatism into tangible gains. The Turkish parliament’s ratification of Sweden’s NATO accession unblocked a long-stalled US sale of F-16s and upgrade kits, shoring up the air force after exclusion from the F-35 programme. These steps mended ties with Western allies without forcing Turkey to abandon her delicate balancing act with Russia. The practical result is restored channels for defence modernisation and a stronger voice within NATO at a time of European rearmament. 

Turkey’s most conspicuous hard-power strength is the domestic defence sector. The navy’s flagship TCG Anadolu, commissioned in 2023, is the world’s first drone-optimised amphibious assault carrier and a potent symbol of indigenous capability. On the air side, Turkish Aerospace’s KAAN fighter achieved its maiden flight in 2024 and is moving through a multi-prototype test programme, while Baykar’s Kızılelma unmanned fighter progressed through radar and weapons testing this autumn, with serial production slated to begin mid-decade. These programmes do more than equip Turkey; they underpin a thriving export industry and deepen supply-chain autonomy. 

Energy is the second pillar of structural strength. The ongoing build-out of the Akkuyu nuclear plant—despite sanction-related component delays—keeps Turkey on course for a baseload addition that could reach roughly a tenth of national electricity once all four units are online. Meanwhile the discovery of an additional 75 bcm of Black Sea gas in May 2025, alongside ramp-up at the Sakarya field, promises incremental relief to the import bill and strengthens Ankara’s hand in gas diplomacy. Timelines are not immune to slippage, but the direction is clear: more domestic kilowatt-hours and cubic metres, less vulnerability to external price shocks. 

On the macroeconomy, 2025 has been a year of uneasy normalisation. After the mid-2023 policy pivot, the central bank lifted rates sharply, then began cutting from very high levels as disinflation took hold. By October 2025, headline inflation had eased to 32.9% year-on-year—still painfully elevated, but markedly down from peaks—and the policy rate stood at 39.5% following a deliberately slower pace of easing. This is hardly a low-inflation environment, yet it is compatible with an investment revival in sectors that can price in foreign currency or export. The credibility gain from a clearer monetary stance has also helped narrow risk premia. 

The real economy has proven stubbornly resilient. The IMF’s October 2025 outlook projects Turkey growing around the mid-3% range, respectable by European standards given tight money and global headwinds. Tourism remains a standout: 2024 receipts reached a record $61 billion, and quarterly data through 2025 confirm continued strength into the high season. A wide manufacturing base—automotive supply chains, white goods, machinery, textiles, and a rising share of defence and electronics—anchors employment and exports, even as import costs and financing remain challenges. 

External balances are the pressure point to watch. The current account has improved on a rolling basis compared with crisis periods, aided by tourism inflows and softer energy prices, but monthly deficits still reappear with domestic demand pulses. Sustaining a move towards balance will depend on holding the disinflation line, keeping real interest rates positive long enough to anchor expectations, and accelerating energy substitution from the Black Sea and, in time, Akkuyu. 

Migration policy is a further axis of both strength and strain. Turkey continues to host one of the largest refugee populations in the world, with EU institutions estimating more than 3 million Syrians alongside other nationalities, and total refugee numbers around four million. Brussels has channelled close to €10 billion since 2011 to support refugees and host communities, reflecting Ankara’s centrality to Europe’s migration management. Shifts inside Syria since late 2024 have begun to alter flows, but the humanitarian, political and labour-market complexities remain substantial. 

Add to this a diplomatic playbook honed in the Black Sea, the South Caucasus and the Eastern Mediterranean. Turkey’s mediation in grain routes, her relationship management with both Kyiv and Moscow, and her activism in the Caucasus have all buttressed her status as a pivotal middle power. That status is reinforced by the ability to act—amphibious lift, long-range drones, an assertive coast guard, and a confident foreign ministry—which in turn sustains Ankara’s bargaining power with Washington, Brussels, and Moscow alike. 

The risks to this strength are real. Inflation, even on a downward path, is corrosive to living standards and political goodwill; rate-cut cycles can rekindle price pressures if they race ahead of expectations. Earthquake reconstruction costs weigh on fiscal space. Institutional independence—of the central bank, the statistical institute, and regulators—remains a market concern. And the opposition’s control of the country’s most economically significant municipalities means that national-local friction will colour everything from zoning and transport concessions to public-private partnerships.

Yet the balance sheet for 2025 is not bleak. Turkey retains a rare combination: a large, young workforce; a sophisticated industrial base moving up the value chain; an increasingly capable defence-industrial system; and a geostrategic position that reliably converts into diplomatic and commercial leverage. If Ankara can lock in disinflation, keep real rates credible, and let technocrats finish the hard work begun in 2023—while husbanding the dividends from energy and defence—then the country’s political and economic strength under Erdoğan will remain considerable, even as the contest for the post-Erdoğan era gathers pace in the cities that now set the national mood.