Türkiye Economic Outlook. June 2024

Summary

The committed actions against inflation are well-received. Foreign currency demand of residents prior to the March local election has reversed and foreigners’ inflow for Turkish assets has accelerated. Yet, lagging fiscal measures & macro-prudential policies on retailer spending keep challenges on inflation outlook.

Key points

• Key points:
• In our global baseline scenario, interest rates are expected to gradually fall. Global growth will be weak in 2H24 and recover somewhat in 2025. Inflation will ease further, but is set to remain higher than in recent decades on demand and supply factors.
• In Türkiye, there has been a growing positive sentiment since April. The committed actions against inflation are well-received. Foreign currency demand of residents prior to the March local election has significantly reversed and foreigners’ inflow for Turkish assets has accelerated.
• Given the strong performance of 1H24, risks start to be tilted to the upside for our 2024 GDP forecast of 3.5% and to the downside for our 2025 GDP forecast of 3.5% due to lagged effects.
• 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 revised our year-end CPI forecast to 43% (45% previously), led by a more positive currency outlook in the very short term with our downward revision to 38 USDTRY for 2024 end. If the inflation trend improves as expected, there might be a limited room to start easing with very gradual steps in 4Q24. Yet, lagging fiscal measures & macro-prudential policies on retailer spending availability might delay the cutting cycle to later.

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