After taking charge of the economy a second time after a nearly five-year break, Mehmet Simsek made issued a remarkable warning to the business bosses. “Domestic demand will slow down in the coming period,” said Şimşek, and advised the bosses to “definitely look for foreign markets.” Şimşek’s words point to the expectation of a loss of momentum in the economy.
According to SOZCU, similar comments five years in the Uludağ Economics summit landed him in hot water with Erdogan and may have played a role in his replacement with son-in-law Berat Albayrak.
ECONOMY TO SLOW DOWN IN 2024
Low interest and exchange rate policy, which was implemented to speed up the economy before the election, changed after the May elections due to the risk of a balance of payments crisis.
With the rapid increase in interest rates and the slowdown in credit growth, the wheels of the economy began to slow down, but the real impact of the slowdown is expected to be felt in 2024.
The economic growth rate, which was 11.4 percent in 2021, 5.5 percent in 2022 and 4.7 percent in the January-September period of 2023, is expected to decrease significantly in 2024.
In the Medium Term Program (MTP) announced by the government at the beginning of September, the growth expectation for 2024 was 4 percent. The “output gap” curve, which was included in the inflation report announced by the Central Bank (CBRT) on November 2 and is critical guide to growth expectations, implied a forecast of approximately 2 percent in 2024.
While the IMF announced its 2024 growth prediction for the Turkish economy as 3 percent at the beginning of September, the OECD announced its expectation as 2.9 percent last week.
International credit rating agency Fitch announced on Friday its 2024 forecast for Turkey as 2.5 percent.
Citi, one of the leading banks in the USA, announced its expectation as 0.4 percent last week. If this prediction comes true, it will be recorded as the lowest growth rate in the 15 years after 2009.
In the CBRT’s November survey of market participants, the growth expectation for 2024 was 3.3 percent.
Although there are significant differences between expectations, all forecasts point to a significant loss of momentum in the economy in 2024.
Slowdown in growth is expected to increase the unemployment rate
According to Turkstat, the unemployment rate, which was 9.2 percent (narrowly defined) and 22.5 percent (broadly defined) in September, is expected to increase significantly in 2024. As a matter of fact, in the MTP, the unemployment rate expectation for 2024 was 10.3 percent.
Citi, on the other hand, expects the narrowly defined unemployment rate to rise to 12.4 percent in 2024. OECD’s expectation is 10 percent.
HIGH INTEREST RATES AND HIGH INFLATION
Consumer inflation, which was 61.98 percent according to TURKSTAT, 73.89 percent according to Istanbul Chamber of Commerce and 129.27 percent according to private research group ENAG in November, is expected to remain at high levels in the first half of 2024, although it started to decrease in the second half of the year.
CBRT expects official inflation to end the year at 36 percent, after peaking at around 75 percent in May.
In the CBRT’s November survey, market participants’ inflation expectations for November 2024 are 43.9 percent.
OECD’s inflation expectation for the end of 2024 is 47.4 percent, Fitch’s expectation is 38 percent, Deutsche Bank’s expectation is 41.1 percent, Citibank’s expectation is 42.9 percent.
Although there are differences between them, all forecasts show that high inflation will continue to be at the top of Turkey’s agenda in 2024.
The CBRT policy rate, currently at 40 percent, is expected to be increased in December and January to 45%; and then remain at 40 percent for the rest of the year. Deutsche Bank and Citibank expect the CBRT policy rate to be 40 percent by the end of 2024.
Consumer loan interest rates, which are currently around 70 percent including taxes and commissions, are expected to remain high throughout 2024.
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