Türkiye’s economy in 2024 experienced one of its most transformative years in recent memory, marked by critical policy adjustments aimed at tackling inflation and stabilizing markets.
While the war against inflation yielded only modest successes, Turkey’s other chronic illness, namely high current account deficits were tackled with startling success.
Borsa Istanbul performed superbly in the first half, on the back of foreign financial inflows but largely treaded water in the second half. Nevertheless at the end of the year the main index outperformed MSCI EM Equities Index with 9% dollar gains vs 5%.
The year began with the continuation of strict monetary policies but ended with a significant shift in strategy. The focus of the economic management in 2024 was taming inflation.
Following the resignation of Governor Hafize Gaye Erkan in February, Fatih Karahan took over as head of the Central Bank as the bank maintained an aggressive tightening policy, raising interest rates to a peak of 50 percent by mid-year.
This policy succeeded in reducing inflation to a 17-month low of 44.3 percent by December.
But the most notable development came in late December, when the Central Bank shifted course by cutting its key interest rate for the first time in nearly two years, trimming the policy rate from 50 percent to 47.5 percent.
The bank emphasized that it remained committed to maintaining price stability and would monitor inflation closely before making further adjustments.
The international community took note. Global credit rating agencies, Moody’s, Fitch and S&P Global, upgraded Türkiye’s rating significantly throughout 2024.
This reflected a growing confidence in Türkiye’s economic management and its commitment to addressing structural challenges.
In addition to these rating upgrades, Türkiye saw a significant improvement in its international reserves which hit a record level of $159.4 billion as of Dec. 6.
Türkiye’s five-year credit default swaps (CDS) dipped below 250 basis points on Dec. 6 for the first time since February 2020, leading to easier access to financing with decreased cost.
The performance of Türkiye’s benchmark BIST 100 stock index also reflected renewed investor sentiment. Throughout 2024, the index saw a robust recovery, rising nearly 34 percent by year-end, led by gains in the banking and industrial sectors.
Despite these positive developments, the country faced challenges. The unemployment rate rose to 8.8 percent in October, reflecting the economic adjustments and the impact of high interest rates on job creation.
GDP growth in Türkiye slowed in 2024. The economy grew by 5.5 percent year-on-year in the first quarter, 2.4 percent in the second quarter and 2.1 percent in the third quarter. The Turkish economy contracted by 0.2 percent quarter-on-quarter in both the second and third quarters of 2024, reversing 1.2 percent growth in the first quarter.
Leading indicators for the fourth quarter herald a significant improvement in economic activity, led by consumer confidence and SAMEKS composite PMI.
According to ING, in October, Turkey’s current account balance posted a US$1.9bn surplus, higher than the market consensus of US$1.3bn and our call of US$1bn. Given that it was well above that in the same month of 2023, the 12-month rolling deficit that has maintained a narrowing trend to US$7.7bn (translating into around 0.6% of GDP). This is from US$9.5bn a month ago, which was the lowest reading since mid-2020. Current account is expected to revert to a deficit as tourism revenues dry up, but should end the year at around 1% of GDP, a considerable achievement compared to 5.4% in 2023.
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