S&P sharply hikes Turkish inflation view over energy fallout from war

ANKARA: S&P Global hiked its Turkish inflation forecast to an average of nearly 29 percent for this year mostly due to surging energy prices, underlining the country’s vulnerability to Iran war fallout that has already begun testing its years-long inflation-fighting effort.

The ratings agency expects average inflation of 28.9 percent in 2026, up from a previous forecast of 23.4 percent. It said Turkey’s heavy import dependence leaves it highly exposed to swings in oil and gas prices, with net energy imports accounting for 3.5 percent–4.5 percent 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.

Despite elevated inflation and a tight monetary policy stance, Turkey’s economic growth should remain resilient due to an expected recovery in agriculture, a positive household wealth effect from rising gold prices and continued momentum in loan growth, S&P said.

It projects GDP growth of 3.4 percent in 2026, compared to 3.6 percent in 2025.

Authorities began reversing years of unorthodoxy in mid-2023 by adopting tighter economic policies, including sharp interest rate hikes, in an effort to halt an extended inflationary and currency crisis.

Annual inflation was 31.5 percent in February after a gradual decline from 75 percent in 2024, the year in which the central bank began slowly cutting rates.

But the bank halted its easing this month and explicitly cited fallout from the US-Israeli war on Iran, which has engulfed the region and slashed global energy supplies.

A Reuters poll showed the median year-end inflation forecast rose to 25 percent from 23 percent before the war.

JPMorgan said higher oil and gas prices pose a direct risk to Turkey’s external balances. The fallout “raises concerns regarding a deterioration in the current account, which could threaten FX stability and undermine Turkey’s disinflation efforts in 2026,” it said.

Iran supplied around 14 percent of Turkey’s total gas imports last year, while Russia and Azerbaijan provided 37 percent and 21 percent respectively. The rest is imported in liquid form.