The Turkish economy expanded 3.4% year-over-year in the fourth quarter of 2025, driven by domestic demand, bringing full-year growth to 3.6%, official data showed on Monday.

The figures came in slightly below market expectations of 3.5% growth in the final quarter and 3.7% for the full year. Growth had slowed to 3.3% in 2024 from 5% the previous year.

Treasury and Finance Minister Mehmet Şimşek said increased demand from trading partners and improvements in financial conditions are expected to contribute to growth in 2026, assuming that risks stemming from geopolitical developments are temporary and uncertainties in global trade ease.

His remarks came as markets reacted sharply to escalating tensions in the Middle East following attacks by Israel and the United States on Iran.

Data from the Turkish Statistical Institute (TurkStat) showed that last year's expansion was led by the construction sector, where value-added rose 10.8%, followed by information and communication activities at 8%.

The agriculture, forestry and fishing sector contracted by 8.8%.

Şimşek said production continued to increase across most sectors despite adverse weather conditions weighing on agriculture.

"While the effects of frost and drought in agriculture continued in the final quarter of the year, production increases were sustained in other sectors," he said.

Industrial value-added rose 2.9% in 2025, marking the highest increase in four years, he added.

Value-added in construction also maintained strong momentum, partly driven by accelerated housing deliveries in earthquake-affected regions.

Şimşek said net foreign demand made a negative contribution to growth in 2025, amid rising protectionism and global trade uncertainty. However, the current account deficit remained at sustainable levels at 1.6% of gross domestic product (GDP).

"To make our gains permanent, we will support our policies with structural and supply-side steps. We will continue to implement our program with determination to ensure price stability, which will provide sustainable high growth and a fairer income distribution," he added.

A year‑over‑year breakdown of expenditure components showed that private consumption rose by 5.2% and contributed 3.7 percentage points to GDP.

"This reflects an acceleration from the previous quarter, likely supported by the central bank's ongoing rate‑cutting cycle, the wealth effect from higher gold prices and persistently elevated inflation expectations," said analysts at Dutch financial giant ING.

Investment increased 5.4%, adding 1.4 percentage points to growth. The expansion was largely driven by construction investment, which grew 8.7%, while machinery and equipment investment rose 2.8%.

Public consumption fell 0.9%, subtracting 0.1 percentage points from overall GDP, suggesting tighter fiscal discipline.

Inventories shaved 0.2 percentage points off growth, while net exports reduced growth by 1.4 points.

In quarter-over-quarter terms, the economy grew 0.4% on a seasonally and calendar-adjusted basis, TurkStat said.

Sequential growth was primarily driven by private consumption, which contributed 2.8 percentage points. All other components weighed on the headline figure: net exports had the largest negative impact at 1.8 percentage points, followed by inventories at 0.3 points, government consumption at 0.2 points and capital formation at 0.1 points.

Economic officials had said they expected last year's growth to slightly exceed the government's 3.3% forecast. They expect a supportive global environment to strengthen activity further this year.

In its three-year economic road map, the government expects the economy to grow by 3.8% this year.

Growth in the third quarter was revised to 3.8% from 3.7%, and second quarter growth was revised to 4.7% from 4.9%, the data also showed.

Leading indicators for the first quarter, including PMI readings, capacity utilization and both consumer and real sector confidence indices, point toward an acceleration in growth.

Analysts say the outlook is supported by policy rate cuts in the second half of 2025 and expectations that the easing cycle will continue.