Türkiye | Supply conditions weaker than demand

Summary

Growth outlook remained weak, while the demand indicators point to a slower-than-desired correction. Considering tight financial conditions and the gradual moderation in domestic demand, we expect the economic growth to reach 3.2% in 2024 but downside risks are increasing on our 2.7% growth forecast for 2025.

Key points

• Key points:
• The construction and services sectors could prevent a faster deterioration in activity in 3Q while industrial production remained subdued.
• Leading indicators confirm our expectation that GDP growth on a quarterly basis could remain steady, albeit weak, in 4Q. Our nowcasts show a stagnant quarterly growth in September and only a limited improvement in October with 0.4% q/q, implying a 2.3% y/y GDP growth.
• We observe aggregate demand excluding government expenditures and stocks as bottoming out in 4Q, where private consumption might support GDP growth on a quarterly basis and the contribution from net exports to growth might slightly decline in 4Q. Overall, the demand side indicators point to a slower-than-desired adjustment of the demand on the back of real currency appreciation under high inflation expectations, unfavorable credit composition and wealth effects.
• The likelihood of protectionist policies after Trump winning the US election and the increasing uncertainty regarding the geopolitical risks could have downside risks on growth outlook in the near future.
• We expect monetary policy to remain tight despite the expected easing in 2025. On the other hand, expected fiscal consolidation should be calibrated carefully to contain downside risks that could arise on external factors while supporting the fight against inflation.

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