Türkiye's economy expanded at a moderate pace in the second quarter despite a sharp slowdown in domestic demand amid tight monetary policy and the Iran war impact, official data showed Monday.

Gross domestic product (GDP) grew 2.3% on an annual basis in the April-June period, the Turkish Statistical Institute (TurkStat) said. That compared with market forecasts ranging from 2.5% to 2.9%.

Treasury and ⁠Finance Minister Mehmet Şimşek said growth would rise after the "balanced" second quarter expansion, which he said came despite heightened geopolitical tensions and difficult global conditions.

"Thanks to progress in the disinflation process and more supportive global conditions, we expect growth to gradually increase in the coming period," Şimşek said in a statement after the data.

GDP grew 1.1% from the previous quarter on a seasonally and calendar-adjusted basis, compared with a revised 0.3% in the previous three months, the data showed.

The strongest growth by activity was shown by agriculture, forestry and fishing, which expanded 13.3%, while information and communication grew 8.6%, the data showed.

Public administration, education, human health and social work activities expanded 4%. Value added increased 3.2% in other service activities, 2.4% in industry, and 2.1% each in financial and insurance activities and real estate.

Construction was the only major sector to contract, falling 1.9% from a year earlier.

At current prices, Türkiye's GDP rose 36% year-over-year to TL 19.87 trillion ($438.35 billion) in the second quarter.

Şimşek said annualized GDP exceeded $1.7 trillion.

Household consumption, which accounts for more than two-thirds of the economy, increased 3.5% in the April-June period. That compared to 5.1% in the first quarter. The data showed government consumption declined 1.8%.

Gross fixed capital formation, a measure of investment, grew 0.6% from the same period last year.

Exports of goods and services fell 3.4% year-over-year, while imports decreased by a sharper 6.4%.

Şimşek said the annualized current-account deficit reached $38.9 billion in the second quarter, reflecting the impact of geopolitical developments on Türkiye's trading partners and higher commodity prices, particularly energy.

The deficit remained at a sustainable 2.3% of GDP, he added.

Haluk Bürümcekçi from Bürümcekçi Research and Consultancy said there was an "increasingly evident loss of ⁠momentum in domestic demand."

Bürümcekçi added that the "positive contribution from net external demand after six quarters suggests that the first signs of the 'rebalancing among demand components,' one of the key objectives of the economic program, have begun to emerge."

External demand contributed 0.6 percentage points to second-quarter growth, while domestic demand shrank 1.3% quarter-over-quarter, economists ⁠said, noting that this was a disinflationary development.

Turkish annual consumer price inflation cooled to 31.75% in July. The decline in inflation had stalled following a sharp rise in energy prices caused by the Iran war.

The country's central bank has held the benchmark one-week repo rate at 37% in the last four policy meetings as ⁠it monitors Middle East conflict fallout.

While tight monetary and fiscal policies implemented to balance domestic demand and combat high inflation put pressure on growth, the economy grew by 2.6% in the first ⁠quarter, according to revised figures.

Growth in 2025 was revised to 3.7% from 3.6%.

GDP at current prices increased 41.6% to TL 63.24 trillion last year, while GDP per capita stood at TL 714,682, or $18,103.

The government's current medium-term program projected growth of 3.8% in 2026. A new medium-term program will be announced next week.

Şimşek said the 2027-2029 road map would focus on achieving price stability, strengthening Türkiye's growth potential through technological transformation and productivity gains and securing lasting improvements in living standards

Şimşek said the budget continued to perform positively despite the government foregoing significant tax revenue through its fuel-price adjustment mechanism launched in March to limit the impact of the Iran war.

The so-called sliding-scale system allowed reductions in the special consumption tax (ÖTV) to offset increases in global oil prices and limit their impact on domestic fuel prices and inflation.

Gross external debt remained broadly stable at 31.6% of GDP in the second quarter, Şimşek said.

Türkiye's total debt-to-GDP ratio stood at 91%, well below the average of 229% for emerging markets and 306% globally, he added.