Türkiye’s Economy

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.

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.

Turkish economy grew by 4.0% y/y in 4Q23 (vs. 3.6% exp. and consensus), leading to an overall GDP growth of 4.5% in 2023. We maintain our 2024 GDP growth forecast of 3.5%, for which we envisage pre-election fiscal impulse and expected capital inflows will be supportive.

We expect GDP growth to materialize closer to 4.5% in 2023 and decelerate to nearly 3.5% in 2024, where the fiscal stance and the size of capital inflows will be decisive. Leading indicators show that domestic demand remains stronger than supply, posing risks on both inflation and current account deficit.