Türkiye's economy lost momentum in the first quarter of the year, but still remained in positive territory despite the fallout from the Middle East conflict, official data showed Monday.

Gross domestic product (GDP) expanded 2.5% on a yearly basis in the January-March period, compared with 3.4% in the previous quarter, according to Turkish Statistical Institute (TurkStat).

The slowdown coincided with the start of the U.S.-Israel war on Iran, which sent energy prices soaring and revived inflationary pressures.

Authorities had already been pursuing tight monetary policy to sustain disinflation trend, which slowed in recent months as the Iran war pushed energy-market volatility.

Despite multiple shocks and global uncertainty, Treasury and Finance Minister Mehmet Şimşek said the economy maintained uninterrupted growth for 23 consecutive quarters, adding that national income had exceeded $1.6 trillion.

"Global uncertainties and the weak outlook among our trading partners, together with net external demand, limited growth," Şimşek wrote on the social media platform X.

GDP grew 0.1% from the previous quarter on a seasonally and calendar-adjusted basis, down from 0.4% in the prior three months, the TurkStat data showed.

Surveys had expected a 2.7% annual expansion and about 0.3% growth quarter-over-quarter.

The data also showed the calendar-adjusted chained volume index of GDP increased by 2.6% compared with the same quarter of the previous year.

There was no revision to the 2025 growth rate of 3.6%, the data showed. After growing 4.7% in the second quarter last year, growth slowed to 3.8% and then 3.4% in the following two quarters.

At current prices, GDP rose 35.7% year-over-year to TL 16.99 trillion ($389.6 billion) in the first quarter of this year.

Among economic sectors, information and communication recorded the strongest annual growth, with value added increasing 9.5%.

Other services activities grew 5.2%, followed by agriculture, forestry and fishing at 4.6%, trade, transportation, accommodation and food services at 3.7%, financial and insurance activities at 3.5% and construction at 3.2%.

Real estate activities expanded 3%, while taxes less subsidies on products increased 2%. Professional, administrative and support service activities rose 1.9%, and public administration, education, human health, and social work activities increased 1.8%.

The industrial sector, however, contracted 0.8% during the period.

On the expenditure side, final consumption expenditure of resident households rose 4.8% year-over-year in the first quarter, while government final consumption expenditure increased 2.1%.

Gross fixed capital formation climbed 3%.

Exports of goods and services declined 12.7% year-over-year, while imports of goods and services fell 2%.

Şimşek said industrial value added contracted in the first quarter due to global conditions and calendar effects, while noting growth in agriculture after last year's decline caused by frost and drought.

He said agriculture is expected to support growth this year.

"Although rising energy costs have caused a temporary slowdown in the disinflation process, our determined stance in the fight against inflation continues," he stressed.

Consumer prices rose 4.18% month-over-month and 32.37% on an annual basis in April, mainly driven by pressures amid the fallout from the Iran war.

The domestic producer index rose 3.17% month-over-month for an annual increase of 28.59%.

The Central Bank of the Republic of Türkiye (CBRT) has flagged rising inflation risks, saying it's closely monitoring the fallout of the conflict and ‌potential second-round effects.

Last month, the bank raised its end-2026 interim inflation target to 24% from 16% and lifted its end-2027 target to 15% from 9%. It set its end-2028 interim target at 9%.

The current outlook "may translate into a more marked slowdown in the second half of the year," analysts at the Dutch financial giant ING said.

But a potential resolution of the Iran war "could help alleviate the current downside pressures on the economic outlook, providing some relief to growth prospects," they wrote.