While Consumption Slows Due to Tight Monetary Policy, Production and Exports Stand Out
While a slowdown is observed in household consumption due to the impact of tight monetary policy, industrial production and exports began to come to the forefront in the second quarter.
While household consumption has entered a trend of slowdown in line with the applied tight monetary policy, leading data for the second quarter indicate that industrial production and exports are once again beginning to stand out.
Shift in Growth Dynamics
Although a production-oriented and sustainable growth was targeted through tight monetary policy, household consumption grew by 4.8 percent in the first quarter. Net exports gave a negative contribution of 2.5 percent, which caused surprise in consumption-driven growth figures.
Leading data for the second quarter point out that the needle in the growth picture has turned in the opposite direction. While domestic demand, which has been carrying the economy for a long time, shows a slowdown, production and exports have started to come to the forefront again.
Retail and Credit Trends
The first sign of this transformation clearly emerges on the consumption side. While the growth rate of the retail sales volume declines markedly, contraction is also experienced on a monthly basis.
The spending model that grew through credit cards and consumer loans leaves its place to a more controlled spending behavior. While spending slows down, consumer confidence rises, and in June, the consumer confidence index reached its highest level of the last three years.
Inflation Process
The decline process in inflation ranks among the most fundamental elements behind this change in the economy. In May, annual consumer inflation pulled back down to the 32.6 percent level.
However, authorities and experts state that the easy part of the disinflation process has been completed and the subsequent period will be more challenging.
Industry and Foreign Trade
Industrial production recorded an increase of 6 percent on an annual basis in April. According to foreign trade data, exports increased by 22.3 percent in April, rising to 25.4 billion dollars.
In the same period, imports showed an increase of only 3.1 percent, and the foreign trade deficit contracted by approximately 30 percent. On the other hand, the fact that 71 percent of imports consist of intermediate goods reveals that the production structure continues its dependence on imported inputs.
Financial Vulnerabilities and Reserves
The most striking risk title in the macroeconomic outlook continues to be foreign exchange reserves. The gross reserves of the Central Bank of the Republic of Turkey declined from 218.2 billion dollars in February 2026 to 152.1 billion dollars as of June 12.
Net reserves excluding swaps dropped from 71.4 billion dollars at the beginning of 2025 to 29.1 billion dollars. This rapid melting in reserves shows that financial vulnerabilities have not completely disappeared and the buffer power against external shocks has weakened.