Turkey is set to revise its economic growth forecasts downward for this year and next, as the government shifts its focus to tackling inflation. The specifics of the adjustments will be revealed in the upcoming Medium-Term Program, though officials are aiming to avoid a significant slowdown while addressing inflationary pressures.
Current projections place GDP growth at 4% for 2023 and 4.5% for 2025, but these figures are expected to be revised lower, according to a source familiar with the plans who requested anonymity due to the sensitive nature of the information. The magnitude of these revisions is of keen interest to investors, as they will indicate how much Turkish authorities are willing to compromise on growth to control soaring prices.
Despite the central bank holding its benchmark interest rate steady at 50% for the past five months, inflation remains stubbornly high, running at over 60%, far exceeding the official target.
The upcoming three-year economic outlook, expected to be released in early September, is seen as a critical indicator of the government’s commitment to economic adjustments. Garanti BBVA Research noted in a report that this outlook will be essential to gauging “the political will” behind Turkey’s economic strategy. The bank’s economists anticipate a quarterly contraction in GDP of 0.5% to 1% when the second-quarter data is published on Monday.
Even with anticipated lower growth, officials believe that unemployment at the end of 2024 will be lower than the current forecast of 10.3%, the source added.
The government has not commented on the details of the new medium-term program. Under President Recep Tayyip Erdogan, Turkey has prioritized high economic growth in recent years, often at the expense of price stability. While a more orthodox policy approach has been adopted following Erdogan’s reelection last year, economic growth has remained resilient, largely driven by strong household consumption, partly fueled by expectations of future price increases.