Macroeconomic Developments

Global Economy

Despite ongoing geopolitical risks, rising trade tensions, and protectionist tendencies on a global scale, 2025 was a period of stable but below-average historical growth for the world economy. The global economic outlook continued to show significant disparities in economic activity levels between countries and regions.

Global growth, which remained below long-term averages, provided a positive framework in terms of financial stability, but also indicated that the recovery in the global economy was uneven and fragile. Following the US administration's announcement of a new tariff package in April based on reciprocity, progress in trade negotiations with many countries led to tariffs remaining below their initially announced levels. These measures contributed to the negative impact on global economic activity being more limited than expected.

Throughout 2025, bringing forward investment and commercial activities to avoid potential tariff increases, stockpiling, and temporary adjustments in supply chain management were among the factors supporting the relatively balanced course of global economic activity. The expansion of high tariffs, initially applied to sectors such as iron and steel, copper, and automotive, to include new sectors such as pharmaceuticals and heavy-duty vehicles, has kept trade policy-related risks alive in the global outlook.

Despite the slowdown in the disinflation process, global central banks continued to cut interest rates at varying speeds across countries, as the impact of tariffs on prices remained below expectations and risks related to labor markets came to the fore. Assessments that uncertainties surrounding trade policies could have a more pronounced impact on inflation and economic activity in the medium term have led to the maintenance of a cautious stance in monetary policy.

Following the peak in policy rates globally in March 2024, central banks entered a gradual easing cycle, but interest rates remained high compared to the pre-pandemic period. High interest rates have led to continued caution in global financial conditions. Restrictive effects on the manufacturing sector have been more pronounced.

On the geopolitical front, the Russia-Ukraine War and new sanctions against Russia, uncertainties regarding lasting peace in the Middle East, tensions between Israel and Iran, regional conflict risks centered on the Eastern Mediterranean and Taiwan, and tensions between the US and Venezuela have been factors increasing risks to the global economy. Moderate global demand, rising oil stocks in the US, increased production by OPEC+ countries, and the commissioning of deferred energy investments resulted in energy prices trending downward throughout the year.

While non-energy commodity prices were also expected to show a similar moderate outlook, geopolitical risks, fiscal uncertainties in the US, expectations of interest rate cuts by the Federal Reserve (Fed), and gold purchases by global central banks increased demand for precious metals, pushing gold prices to record levels.

According to the International Monetary Fund's (IMF) October 2025 Global Economic Outlook Report, the global economy will grow by 3.3% in 2024, followed by 3.2% in 2025 and 3.1% in 2026.

The IMF emphasized that uncertainty surrounding trade policies remains high, with the focus shifting from final tariff rates to the impact of these policies on prices, investment, and consumption. On the inflation front, headline and core inflation globally have been revised upward only slightly compared to previous forecasts, and the downward trend on an annual basis is expected to continue. Global headline inflation is expected to decline from 4.9% in 2024 to 4.3% in 2025 and 3.7% in 2026.

Eurozone

The Eurozone economy continues to look weak and fragile, but it has presented a framework that is expected to show limited recovery in the coming period. Weakness in the German economy, particularly as the locomotive country, continues to be decisive in the region's growth performance. Due to its manufacturing industry and export-oriented production structure, Germany, Europe's largest economy, has continued to experience a decline in industrial production in 2025.

According to IMF forecasts, following 0.9% growth in the Eurozone in 2024, growth is expected to rise to 1.2% in 2025 and reach 1.1% in 2026.

Regional growth is projected to remain relatively weak, below pre-pandemic levels. Germany, the Eurozone's largest economy, is expected to contract by 0.5% in 2024, followed by nearly stagnant growth of 0.2% in 2025 and a partial recovery with 0.9% growth in 2026.

The IMF forecasts growth of 0.2% for Germany in 2025 and 0.9% in 2026.

The German government's official forecasts released in October show that the growth expectation for 2025 has been revised upward from 0% to 0.2%. The contraction in the industrial sector, weak investment, disruptions in the business environment, the burden of bureaucratic processes, the negative effects of US tariffs, and, in particular, competitive pressure from China are considered to pose downside risks to growth. The German government forecasts that the economy will show a more pronounced recovery, growing by 1.3% in 2026 and 1.4% in 2027, supported by infrastructure and public spending.

US Economy

The US economy continued to outperform other advanced economies in 2025, supported by strong private consumption spending. The resilient trend in consumption spending, which constitutes a significant portion of the economy, has been a key factor supporting the growth outlook.

According to IMF projections, the US economy is expected to grow by 2.8% in 2024, followed by a slowdown to 2.0% in 2025 and a moderate outlook of 2.1% in 2026. This indicates that the US growth rate will remain relatively higher than the average for developed countries.

While the Trump administration's variable approach to the economy, trade, and foreign policy has increased global uncertainty, the steps taken appear to be aimed at supporting the US economy. The expansionary budget approach, tax cuts, customs tariffs, and deregulation measures are considered to support growth and create a framework for greater protection of the US economy from external competition. However, despite the increase in revenue from customs tariffs, the federal budget deficit has continued to grow due to high spending levels.

Prior to the tariffs announced in April, market expectations were that inflationary pressures would become more pronounced and that this would slow the Fed's easing process. However, the actual impact of the tariffs on prices has been more limited. This situation has pointed to downside risks on the employment side. The Fed's interest rate cuts have supported economic activity by easing financial conditions.

Global Monetary Policy and Central Banks

Globally, with the impact of tariffs on prices falling short of expectations and risks related to the labor market intensifying, the general orientation of central banks in 2025 has been shaped by interest rate cuts. However, the assessment that the potential effects of protectionist trade measures on economic activity and inflation may become clearer in the medium term has led to the maintenance of cautious communication in monetary policy.

While central banks in developed countries took steps to cut interest rates, supported by an improved inflation outlook, differences were seen in the pace and direction of cuts due to rigidities in service inflation, labor market dynamics, and growth differences between countries. In emerging economies, many central banks continued to cut interest rates, while some countries kept their rates unchanged.

In Brazil, where inflation risks have become apparent, interest rate hikes have been on the agenda. While protectionist policies increase risks to growth and employment, pointing to lower interest rates in the medium term in many countries, managing inflation expectations has remained critically important for emerging market central banks.

Although interest rate cuts are expected to continue in 2026 with the downward trend in inflation, the effects of service price rigidity and geopolitical risks (including developments originating in Russia-Ukraine, the Middle East, and Latin America) on monetary policy will continue to be closely monitored.

US Federal Reserve (Fed)

The Fed began its interest rate reduction process in 2025, noting that inflation remained somewhat high, while downside risks to employment increased. At its September meeting, the Fed reduced the federal funds range by 25 basis points, from 4.25%-4.50% to 4.00%-4.25%, marking the first reduction of the year. The decision was taken by a vote of 11 to 1, with Stephen Miran voting for a 50-basis point cut.

At the October meeting, the interest rate range was lowered to 3.75-4.00% with a 25-basis point cut. The decision was taken by a vote of 10 to 2. Miran defended the 50-basis point cut, while Jeffrey Schmid voted to keep rates unchanged.

At its October meeting, the Fed also announced that it would end its balance sheet reduction as of December 1. This step was linked to the goal of maintaining balanced liquidity conditions. At the December meeting, the interest rate range was lowered to 3.50-3.75% with a 25-basis point cut. The decision was taken by a vote of 9 to 3, with Goolsbee and Schmid advocating for the rate to remain unchanged, while Miran again voted for a 50 basis point cut.

The Fed announced that it would begin purchasing USD 40 billion worth of Treasury bonds per month starting December 12 for reserve/liquidity management purposes and that the pace of purchases would be gradually reduced in 2026. The Fed emphasized that reserves had fallen to adequate levels during the balance sheet reduction process and that short-term asset purchases were needed to maintain these levels permanently. Fed Chair Powell stated that the path to be followed has not been predetermined and that decisions will be made based on incoming data, outlook, and risk balance. While the projections published in December maintained expectations of 25 basis point cuts for 2026 and 2027, the dot plot distribution indicated that differences of opinion among members persist.

European Central Bank (ECB)

The ECB cut interest rates by 25 basis points at its January, March, April, and June meetings in 2025. It kept interest rates unchanged at its July, September, October, and December meetings. The ECB emphasized that it had not committed to a specific interest rate path in advance, continuing its data-driven and meeting-based approach. The main refinancing rate stood at 2.15%, the marginal lending facility rate at 2.40%, and the deposit facility rate at 2%.

ECB President Lagarde stated that the volatile international environment increased uncertainty about the inflation outlook and that the interest rate level was “appropriate,” but this did not mean a static stance. It was stated that decisions would be made taking into account the inflation outlook and risks, core inflation dynamics, and the strength of the monetary policy transmission mechanism.

Japan

Contrary to the global easing trend, Japan has seen interest rate hikes, with economic activity progressing on a path of moderate recovery. Growth, which remained almost stagnant at 0.1% in 2024, is expected to rise to 1.1% in 2025, supported by consumption driven by the expected recovery in real wages, and to reach 0.6% in 2026.

The BOJ raised its policy rate by 25 basis points to 0.50% in January 2025. After keeping the rate unchanged for most of the year, it unanimously raised it to 0.75% in December. This brought the policy rate close to its highest level in 30 years. The BOJ stated that confidence has increased that inflation will steadily reach the 2% target, supported by wage increases. It emphasized that further increases could be on the agenda if the outlook progresses in line with forecasts.

On the political front, following the changes after the July election results, the LDP formed a coalition with the JIP in October, making Sanae Takaichi the country's first female prime minister, which affected market pricing through fiscal policy expectations. While assessments that the yen's depreciation could increase inflation risk came to the fore, Takaichi ordered the preparation of a targeted economic package to reduce inflationary pressure on households and businesses. Inflation in Japan has remained above the BOJ target for three years, requiring a delicate balance between the need for economic support and the pressure of high public debt on long-term interest rates.

China

The emergence of risks that could drag down growth in the Chinese economy in 2025 has led to the continuation of broad monetary and fiscal easing measures. Following growth of 5.2% in 2023 and 5% in 2024, China In 2025, China presented a picture of slowdown in global growth, coupled with weak domestic consumption, high youth unemployment, deflationary pressures, debt problems in the real estate sector, declining property prices, and local government debt weighing on growth. Trade tensions with Western countries have also increased downside risks.

In line with its 5% growth target, the Chinese government announced multi-dimensional stimulus packages, including interest rate cuts, reserve requirement ratio reductions, liquidity-boosting measures, subsidy programs for durable consumer goods, incentives for businesses to upgrade machinery and equipment, issuance of ultra-long-term special treasury bonds, support for infrastructure and strategic sector projects, relaxation of home purchase rules, and increased credit allocation for real estate projects.

The CPC Central Committee announced the 15th Five-Year Plan covering the period 2026-2030 in October. Increasing scientific and technological capacity, strengthening national security, and establishing a modern industrial system were among the key priorities. In line with the goal of shifting the growth engine to domestic consumption, steps to invest in social welfare areas and expand service consumption have come to the fore. Acceleration has been seen in new generation sectors such as artificial intelligence, robotics, and biotechnology. Emphasis on domestic innovation and self-sufficiency in critical technologies, particularly semiconductors, is also among the key components of the plan.

The IMF forecasts that, despite supportive policies, China's growth will slow from 5% in 2024 to 4.8% in 2025 and 4.2% in 2026 due to the negative impact of tariffs. In 2026, the policy focus is expected to be shaped by the fight against weak consumption, local government debt, and risks related to the housing sector.

On the US-China relations front, the trade agreement messages that emerged from the talks between Trump and Jinping in Busan on October 30, 2025, within the scope of APEC, were seen as a development that could limit external demand-driven risks. Statements regarding the US's reduction of additional customs tariffs and China's messages regarding certain import/supply chain steps indicated that progress could be made towards a trade agreement.