The Turkish economy is on track for a better-than-expected growth performance this year, according to Fitch Ratings.

The credit rating agency now expects Türkiye’s gross domestic product (GDP) to expand by 3.5% in 2024, up from its previous forecast of 2.8%, according to its quarterly Global Economic Outlook Report.

Fitch also adjusted its forecast for 2025, lowering it slightly from 3.1% to 3%, and set the 2026 growth expectation at 3.2%.

Türkiye’s economy expanded by 5.7% in the first quarter, one of the world’s highest growth rates at the start of the year, driven by robust domestic demand despite tight monetary policy.

Growth is expected to moderate during the rest of the year as the central bank’s series of aggressive interest rate hikes in the face of soaring inflation weigh on economic activity.

Fitch said it sees inflation, which remains Türkiye’s biggest challenge, ending the year at 43%.

Inflation reached an annual 75% in May, which is said to mark the peak before rate hikes and a relatively stable Turkish lira bring relief.

Authorities have sought to cool domestic demand, the main driver of inflation, and have pledged to do more to prevent the outlook from deteriorating.

Last month, the central bank raised its year-end forecast to 38% as the monetary tightening weighs. Since June last year, it has gradually lifted its benchmark policy rate to 50% from 8.5%.

Fitch sees inflation dropping to 23% and 18% for 2025 and 2026, respectively. The government sees it falling to single digits two years from now.