EU Commission lowers Türkiye’s growth forecasts in autumn economic report

The European Commission has downgraded its economic outlook for Türkiye in its latest report, the European Economic Forecast, Autumn 2024. The report highlights persistent economic challenges facing the country.

Türkiye’s growth forecasts revised downward

In its latest forecast, the European Commission projected Türkiye‘s gross domestic product (GDP) growth at 3% for 2024, down from the previously forecasted 3.5% in the Spring 2024 report. The growth rate is expected to increase to 3.2% in 2025 and further accelerate to 4% by 2026.

The report noted a slowdown in economic activity in the second quarter of 2024, citing the tight policy stance as a key factor. The commission stated that domestic demand is expected to remain weak due to high interest rates, impacting household consumption and fixed investments.

Inflation projections for Türkiye shows mixed outlook

The commission revised its inflation expectations upward for the remainder of 2024. It now expects average consumer inflation in Türkiye to be 59.8% by year-end, an increase from the 57.4% forecast in the Spring report.

Inflation is expected to moderate to 30.8% in 2025 and decline further to 17.8% in 2026.

The report emphasized that while inflation has been decreasing since May 2024, much of the decline was attributed to base effects rather than substantial improvements in price stability.

Service sector inflation remains high, indicating persistent inflationary pressures.

Public deficit expected to narrow

The report pointed out that earthquake-related expenditures, which increased the public deficit in previous years, are projected to decrease, aiding in deficit reduction.

The central government budget deficit is expected to fall from 6.4% of GDP in 2023 to 4.9% in 2024. The commission forecasts a continued decline in the deficit over the next two years as fiscal policies aim to rationalize spending and enhance revenue collection.

The commission noted that despite a high inflation environment, Türkiye’s government debt remains moderate, with the debt-to-GDP ratio expected to stay stable in the medium term.

Soft landing scenario for Türkiye’s economy

Despite ongoing geopolitical risks and economic uncertainties, the commission maintained a “soft landing” scenario for Türkiye’s economy. It forecasts moderate growth and continued disinflation, with a gradual return to economic stability by the end of 2025.

“The tight policy stance is expected to continue weighing on domestic demand, but a gradual recovery is anticipated as macroeconomic stabilization takes hold,” the report stated.

External trade and current account outlook

The commission noted improvements in Türkiye’s external trade, driven by a decline in energy prices and reduced imports of non-monetary gold.

The current account deficit is forecasted to remain stable at -1.3% of GDP in 2024, widening slightly to -1.6% in 2025 before narrowing to -1.5% in 2026.