Turkey's new medium-term plan lifts year-end inflation to 28.4% and raises defense spending 229%

SentiSense · Published Sep 6, 2026, 4:28 AM ET · Updated Sep 6, 2026, 11:50 AM ET

Vice President Cevdet Yilmaz unveiled Turkey's 2027-2029 Medium-Term Program on September 6, raising the 2026 year-end inflation forecast to 28.4% and cutting 2026 GDP growth to 3.3% from 3.8% and 2027 growth to 4.2% from 4.3%. The programme also raises defense spending by 229%. Yilmaz put the direct and indirect inflation cost of the Middle East war at about seven percentage points, up from an estimate of at least five points given in June.

Turkey published its 2027-2029 Medium-Term Program on September 6, and the revisions run in one direction. Vice President Cevdet Yilmaz raised the year-end 2026 inflation forecast to 28.4%, saying the government expects prices to start declining again in the fourth quarter. Growth was marked down at the same time: 2026 GDP growth falls to 3.3% from 3.8%, and 2027 to 4.2% from 4.3%, with the plan extending to 4.6% in 2028 and 5% in 2029. The disinflation path in the same document runs 21% in 2027, 13.5% in 2028 and 9% in 2029.

The programme attributes a large share of the inflation problem to the Middle East war. Yilmaz put its direct and indirect effects at approximately seven percentage points of inflation, which supersedes the finance minister's estimate of at least five points given in June. That upward revision, made in a document whose whole purpose is to project disinflation, is the tension at the centre of the plan.

Against that backdrop the fiscal side moves the other way. The same programme raises defense spending by 229%, announced without a stated baseline year or a breakdown between nominal lira and share of GDP, so the headline figure should be read as reported rather than as a settled measure. A spending increase of that magnitude alongside a slowing growth forecast puts the burden of disinflation squarely on monetary policy and the lira.

The recent data give the central bank slightly more room than the forecasts imply. Annual CPI eased to 31.75% in July 2026 from 32.11% in June, marginally below the 31.8% market expectation . Reaching 28.4% by December still requires the decline to continue through the fourth quarter, exactly the window in which the announced defense outlays begin. For investors with Turkish exposure the practical markers are the monthly CPI prints between now and year-end, the central bank's next rate decision, and whether the 2027 election calendar pulls the fiscal stance looser than the programme assumes.