Türkiye Economic Outlook. March 2025

Summary

Global financial volatility has risen due to the impact of evolving US policies, which we expect to create negative shocks. In Türkiye, financial conditions have recently eased above the neutral level and credit growth has accelerated beyond the capped segments, increasing the challenges on the inflation outlook.

Key points

• Key points:
• Global growth is set to slow amid rising uncertainty and protectionism. Fed will likely hold rates steady till 2H25. Both ECB and Bank of China are expected to ease stance further. On EM capital flows, we now have negative prospects for 2025 mostly on high volatility and still high US interest rates.
• In Türkiye, cash spending evolution keeps the risks on expected public spending cuts to the down side. Despite increasing challenges, the CBRT communication signals optimism on inflation outlook, implying lower real rates than we previously expected.
• We have revised our 2025 GDP growth forecast to 3.5% (vs. 2.5%) on top of earlier and stronger than expected recovery as of 4Q24, which creates a positive carry-over impact for 2025 and a negative one to 2026 (revision to 4% vs. 4.5% previously).
• We expect the CBRT to rely on a similarly strong real appreciation to last year and credit growth caps for longer (may be tighter except for SMEs). We now forecast 42 USDTRY by end 2025 (vs. 45.5 previously) and keep next years’ forecasts the same.
• We forecast 29% year-end inflation for 2025 and 20.5% for 2026 due to new inflation shocks (administrative prices and new CPI weights) and expectations of softer negative output gap with lower real rates (31.5% and 23% policy rate by end 2025 and 2026).

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