European Bank for Reconstruction and Development forecasts 2.7% growth for Turkish economy in 2024

EBRD expects Türkiye’s economy to grow by 2.7% this year and 3% by 2025, anticipating sustained tightening in monetary and fiscal policies to combat inflation

The European Bank for Reconstruction and Development (EBRD) has forecasted that the Türkiye economy will grow by 2.7% this year and 3% in 2025. It expects continued tightening of monetary and fiscal policies to combat inflation.

According to the Bank’s Regional Economic Outlook report, the EBRD revised its regional economic growth forecast downward by 0.2% to 3% last September.

Economic growth in EBRD economies stood at 2.5% last year.

Turkish economy to grow by 3% in 2025

The bank also revised its growth forecast for the Türkiye economy from 3% in September to 2.7%. The expectation of continued tightening in monetary and fiscal policies to combat inflation contributed to the downward revision in growth expectations.

The bank has forecasted that the Türkiye economy will grow by 3% in 2025.

The report indicated that Türkiye’s economic policy has tightened with tax increases and stronger macro-prudential policy measures, while economic growth last year was driven by the service sector, propelled by post-earthquake restructuring efforts.

Returning to more orthodox policies since June 2023 has increased confidence among domestic and international investors, leading Türkiye to receive its first sovereign credit rating upgrade from a major rating agency in over a decade.

However, risks persist because of high inflation, slower growth in Europe, increasing regional geopolitical tensions, and high short-term external financing needs, all against the backdrop of tighter global financing conditions.

Of the €19.8 billion invested by EBRD in Türkiye since 2009 across 442 projects and trade finance initiatives, 93% has been directed to the private sector.

Investor confidence rises in Türkiye despite inflation peaks

The Regional Chief Economist of the EBRD, Rafik Selim, stated that the return to orthodox economic policies in Türkiye has improved confidence among domestic and international investors.

Selim expressed expectations for this month to mark the peak of annual inflation in Türkiye, stating: “With the relatively strengthening Turk Lira and the tightening measures implemented since June 2023, we anticipate annual inflation to peak this month and start slowing down from June onward. Among these measures are the CBRT increase of the policy rate from 8.5% to 50%, increases in required reserves, quantitative tightening measures, selective credit tightening, limitations on credit growth, and spending cuts in the public sector.

However, inflationary pressures continue to remain strong, emphasizing the need for interest rates to remain high for a longer period and to anchor inflation expectations.”

“The public savings and efficiency package is expected to primarily reduce the widening fiscal deficit because of earthquake-related expenditures in 2023. A tighter fiscal stance will support the fight against inflation, restrict domestic demand and create fiscal space for expenditures in other priority areas.

Additionally, the long-term gains and beyond-application period enduring positive effects of expenditure efficiency, prioritization, and redirection measures such as improving flexible working arrangements, administrative organization review, and widespread use of e-notification systems could be substantial.”

He highlighted Türkiye’s clear structural reform objectives in the Medium-Term Program and the 12th Development Plan, focusing on enhancing human capital, improving the investment environment, deepening capital markets, reforming public finances, increasing efficiency, enhancing competitiveness and advancing green and digital transformations to boost potential growth.

Selim added that with the tightening of fiscal and monetary stances, advancing the structural reform agenda for realizing Türkiye’s significant potential will become increasingly critical in the future.

Source: Newsroom