Fitch predicts slowdown in Türkiye’s inflation to 40% by 2024 end

Fitch Ratings has released its inflation forecast for Türkiye, anticipating a slowdown in the latter half of the year with inflation expected to reach approximately 40% by the end of 2024.

Despite economic growth supporting tax revenues and resilience in the operational performance of local and regional administrations, Fitch anticipates a slowdown because of expected monetary tightening after the local elections in March 2024.

This is projected to decrease actual gross domestic product (GDP) growth to 2.8% in 2024 and to around 3% in 2025.

The report highlighted challenges local and regional administrations face in Türkiye, including high inflation, expected lira depreciation, and an increased minimum wage impacting expenditures.

Fitch expects inflation to ease in 2024 because of tighter monetary policy, reaching 40% by year-end.

Although tax revenues and transfers from the central government may partially offset negative effects, the average activity balance is projected to decrease compared to 2023.

Metropolitan municipalities may reduce planned investments before local elections, but high domestic interest rates and short lira maturities will complicate borrowing needs.

The anticipated depreciation of the lira will impact the debts of local and regional administrations, particularly those denominated in unhedged foreign currency. However, the forecasted operational performance may help maintain stability.