Restrictive monetary policy and tight financial conditions lead output gap to turn into negative in 3Q24. Fiscal consolidation is projected for 2025, which could provide room for a gradual monetary easing. Overall, the policy mix will become more restrictive, potentially curbing GDP growth to below 3% in 2025.
On global economy, we maintain our view of a soft landing and forecast a gradual rate cutting cycle. We expect 3% and 2.5% terminal rates from FED and ECB, respectively, to be reached before the end of 2025.
In Türkiye, we forecast a smooth transition with 3.2% GDP growth rate in 2024 (vs. 3.5%) and 2.7% in 2025 (vs. 3.5%). We also upgrade our long run GDP growth forecasts to 4% (vs. 3.5%), assuming the recent reversal towards orthodoxy will contain the pre-assumed further deterioration.
Given looser external financial conditions and weaker domestic economic activity, we maintain our call of a moderate first rate cut in Dec24 but define risks as staying high for longer.
Medium Term Program (MTP) shows efforts to keep budget deficit to GDP below 5% by end 2024 and closer to 3% by end 2025.
We slightly reduce our 2024 end USDTRY expectation to 37 (vs. 38) on weaker activity and the CBRT’s delayed cut and maintain 45.5 USDTRY forecast for end 2025. We forecast inflation to finish the year annually at 43% in 2024 and 25% in 2025.
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