ISTANBUL (Reuters) – Turkey’s economy is projected to grow by 3% this year and next, which is lower than the government’s recent forecasts. A Reuters poll indicates a significant slowdown as officials aim to control high inflation.
All economists polled expect the central bank to maintain its key interest rate at 50% this Thursday, but to gradually reduce it by 250 basis points by the end of the year.
The government started tightening monetary policy in mid-2023 to counteract a long-standing low-interest-rate strategy aimed at stimulating growth.
Since then, rates have been increased by 4,150 basis points, while the government has implemented tax and savings measures to stabilize the economy amid previous currency crises and rising prices.
The median of 42 economists in the poll estimates GDP growth will average 3% for 2023 and 2024, compared to the government’s forecast of 3.5% this year and 4% next year. The economy grew by 4.5% in 2023.
By 2026, GDP is expected to rise by 3.6%. According to Natixis, the government has adhered to orthodox economic policies, which have pressured growth but assisted the central bank in managing inflation.
Natixis noted, “The effects of tighter policies on economic activity are visible through various indicators… A recession isn’t expected yet, but a slowdown in GDP growth is anticipated.”
The central bank will announce its interest rate decision at 1100 GMT on October 17. Economists do not expect major policy adjustments until next year and predict that rates will drop to 30% by the end of 2025.
Expected rate reductions include a fall to 42.5% in early 2024 and 35% by mid-2024. This cutting cycle is projected to conclude in the third quarter of next year.
Due to tight policies and base effects, inflation decreased to 49.38% in September from a peak of 75.45% in May. Economists forecast a further drop to 43.5% this year and 25.2% by 2025, while the government predicts 41.5% inflation in 2024 and 17.5% in 2025.
Turkey’s current account deficit is expected to be 1.8% of GDP for 2024, in line with the government’s predictions of 1.7% and 2.0% respectively.
(Other stories from the October Reuters global economic poll)
(Polling by Indradip Ghosh and Mumal Rathore; Writing by Ezgi Erkoyun; Editing by Jonathan Spicer and Alison Williams)
`
