Türkiye’s Economic And Financial Risks Eased By Recent Shift Towards Policy Normalisation

Economic Growth Robust But To Slow This Year

GDP growth is expected to moderately decline as tighter funding conditions are offset by the reconstruction efforts following the February 2023 earthquake. We project real GDP growth at 3.3% in 2024, down from 4.1% in 2023.

President Recep Tayyip Erdoğan publicly supports the central bank’s policies – having previously argued that low interest rates would curb inflation. Still, a sharper-than-expected economic slowdown due, for example, to an external shock and/or heightened geopolitical tensions could test the durability of the recent shift towards policy normalisation.

One test will be the government’s commitment to orthodox economic policies in the run-up to local elections in March as the economy slows under the impact of the tighter monetary policy of recent months.

Under a stressed scenario, political interference in monetary decisions could resurface. This could increase the risk of policy reversals, lowering the likelihood of making further gains on reducing inflation and further rebalancing the economy. Decision-making remains highly centralised and independent institutions frequently politicised. The government is reportedly cracking down on internet access ahead of the local elections.

The risk of mistakes in the calibration of policy normalisation and/or reversals constrain Türkiye’s long-term foreign-currency ratings at B- given the country’s enduring external and financial vulnerabilities. Our next calendar review date is 28 June 2024.

For a look at all of today’s economic events, check out our economic calendar.

Thomas Gillet is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.