Growth outlook remained weak, while the demand indicators point to a slower-than-desired correction. Considering tight financial conditions and the gradual moderation in domestic demand, we expect the economic growth to reach 3.2% in 2024 but downside risks are increasing on our 2.7% growth forecast for 2025.
Tight financial conditions continue to put downside pressure on the production side but the leading indicators on the demand side signal a bottoming out in 4Q, led by private consumption, following a weakening in 3Q. Despite the fact that the output gap approached zero in 3Q, aggregate demand remains stronger than supply.
On the supply side, industrial production remained weak while services and construction sectors were able to prevent a faster deceleration in 3Q. Leading indicators such as sectoral confidence indices, PMI and CUR also pointed that production could remain weak stemming from the ongoing tight monetary policy and still tight financial conditions as of November. Accordingly, our monthly GDP indicator nowcasts around 0% quarterly growth, implying 2.5% annual growth in 3Q. It signals the ongoing weak outlook in 4Q as well but with some recovery, which we should evaluate cautiously, given the limited information for November.
Leading indicators show that aggregate demand, which weakened in 3Q led by the decline in private consumption, could rebound in 4Q. High inflation expectations under the real appreciation trend of the currency, the worsened income inequality, and the continuation of the credit composition favoring consumer loans, particularly credit cards, hinder the effectiveness of the monetary transmission mechanism.
Considering current dynamics and ongoing tight financial conditions, we expect growth to be around 3.2% in 2024.
In 2025, despite potential rate cuts, restrictive monetary policy—driven by upside inflation risks—could exert downward pressure on growth. Additionally, potential protectionist trade policy measures by President-elect Donald Trump following the U.S. elections could amplify downside risks to the growth in the coming years. Finally, we believe that the fiscal consolidation expected to support the fight against inflation in 2025 could be calibrated to mitigate the downside risks posed by protectionist policies, aiming for a soft landing. While we maintain our growth forecast for next year at 2.7%, the downside risks are increasing.
Analaysis by BBVA Garanti Invest
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