Türkiye | More deterioration in activity ahead

Economic activity continued to weaken on tighter financial conditions and demand may slow down further in 3Q. We have updated our 2024 growth forecast to 3.2% from 3.5% on base effects, and our 2025 growth forecast to 2.7% from 3.5% on the lagged impact of restrictive monetary stance and fiscal consolidation.

Key points

• Key points:
• Although industrial production increased on a monthly basis in July, the trend continued to worsen if we exclude the positive impact of bridge days and volatile sectors such as the manufacturing of computers, electronic products, and other transportation, in line with the signals from leading indicators such as manufacturing capacity utilization rate and PMI.
• Turnover indices point to a broad-based weakness in sectorial output. Services production and services turnover both indicate that the activity in the services sector could decelerate furher in 3Q.
• Third-quarter data indicates that aggregate demand will continue to normalize, driven by the quarterly contraction in private consumption, while investment might display a technical correction after the sharp decline in 2Q. Thanks to the further moderation in domestic demand, net exports contribution to GDP could turn into positive in 3Q also on a quarterly basis.
• Despite the recent moderation in demand conditions, the credit composition in favor of consumer loans and the fiscal impact on cash spending stemming from accrual expenditures of last year prevent a faster decline in the gap between aggregate demand excluding stocks and aggregate supply.
• The medium-term program confirms the political will for a soft landing. It also suggests that fiscal discipline will be observed in 2025 as part of the efforts to fight against inflation. Hence, restrictive monetary stance for longer on top of still high inflation expectations, and delayed fiscal consolidation led us to adjust our growth forecast for 2025 to the downside.

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