Türkiye Economic Outlook. July 2024

The economic activity shows signs of cooling, while the normalization in demand continues to be gradual. The inflation trend continues easing in the presence of historically much tighter monetary stance. Still, high inflation expectations and supportive fiscal stance remain as the challenges on the inflation outlook.

Key points

• Key points:
• We maintain our expectation of a soft landing in Turkish economy (3.5% GDP growth forecast in 2024 & 2025). The targeted rebalancing in the economy has been slowly taking place due to the counter effects over the monetary transmission mechanism and still supportive fiscal stance.
• The Government aims to keep the budget deficit to GDP ratio below 5% in 2024 and 3% in 2025. Inadequate savings in the short run lead the Ministry to find new revenue sources as presented in the draft bill.
• We forecast consumer inflation to come down to 47-48% by Sep on strong favorable base effects and finish the year at 43% (with 38 USDTRY by year end).
• If an effective policy mix lacks in fight against inflation, the CBRT would remain restrictive longer than we expect in our baseline. This is why we have an upward bias on our CBRT funding rate forecasts, which would have a downward impact on our GDP forecasts for 2025.
• The pace of reserves accumulation has lost momentum compared to early May due to mostly weakening foreigner capital inflow, which reduces the need to sterilize TL liquidity in the market.

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