S&P increases its inflation forecast for Turkey due to the energy impact of war

S&P Global has raised its forecast for Turkish inflation to almost?29% this year, mainly?due to?surging energy prices. This highlights the country's vulnerability due to Iran War fallout which is already testing its long-term inflation-fighting efforts.

Ratings agency expects an average inflation rate of 28.9% by 2026. This is up from the previous forecast of 23,4%. The agency said that Turkey's high import dependency leaves it vulnerable to swings in oil prices and gas, as net energy imports account for between 3.5% and 4.5% of GDP.

In ?its report published to clients on Wednesday, S&P also cited stronger-than-expected price pass-through from January's minimum wage ?hike for its large forecast revision.

S&P stated that despite high inflation and tight monetary policies, Turkey's economy should continue to grow?due a recovery in the agriculture sector, an increase in household wealth from rising gold prices, and a continued momentum in loan growth.

The GDP is projected to grow by 3.4% in 2026 compared with 3.6% in the year 2025.

In mid-2023, the authorities began to reverse years of unorthodoxy by adopting stricter economic policies. This included sharp increases in interest rates, as part of an effort to stop an extended currency and inflation crisis.

In February, annual inflation was 31.5%. This is a decline from 75.0% in 2024 when the central bank started to slowly reduce rates.

The bank has stopped its easing this month, and specifically cited the fallout of the U.S. and Israeli war on Iran. This conflict has affected the entire region and cut global energy supplies.

In a poll, the median inflation forecast for the year ended rose from 23% to 25%.

JPMorgan stated that higher gas and oil prices are a direct threat to Turkey's balance of payments. It said that the fallout was "raising concerns about a deterioration of the current account which could threaten?FX stability?and undermine Turkey's?disinflationary efforts in 2026."

Last year, Iran provided?about 14% of Turkey’s total gas imports. Russia and Azerbaijan respectively supplied 37% and 20%. The remainder is imported as liquid. Canan Sevgili, Can Sezer and Jonathan Spicer contributed to the reporting.

(source: Reuters)