Türkiye Economic Outlook. April 2024

The key point remains to be suppressing consumption since the slow-down in domestic demand is still limited and aggregate demand remains stronger than supply. We eliminate our previous downward bias on 2024 GDP forecast (3.5%) and get ready to have a downward revision on our exchange rate and inflation forecasts for 2024.

Key points

• Key points:
• Activity accelerated in 1Q with 1.5% q/q GDP growth and just slightly decelerated as of May but aggregate demand remained stronger than supply on the back of high inflation expectations, wealth effect and solid credit card consumption.
• Most recently released fiscal savings package indicates a very limited effect of 0.2-0.3% of GDP this year, which would increase in the medium run and start to be more effective on reducing imbalances. We think policy mix would be more coordinated in the coming period.
• We expect the CBRT to remain tight, which would start a sustained path to unwind regulations (firstly credit growth caps, later deposit rules), in order to strengthen the monetary transmission mechanism.
• Thereafter, if inflation trend improves to a level that the year-end inflation falls below 42% -upper bound of the CBRT forecast range-, there might be a limited room to start easing with very gradual steps in 4Q24.
• Yet, lagging fiscal measures & macro-prudential policies on retailer card spending availability reduce the likelihood of a cutting cycle sooner.

Authors

Geographies

Topics

Tags