Türkiye expected to reach sustainable growth by 2026: OECD economist

If Türkiye maintains its current monetary policies and enhances foreign investor confidence, it is expected to return to sustainable growth levels by 2026, according to an economist at the Paris-based Organisation for Economic Cooperation and Development (OECD).

Sebastien Turban, one of the authors of the OECD’s Türkiye economic survey released on April 10, told Turkish news agency Anadolu that the country’s current account deficit has narrowed, while inflation and inflation expectations have declined since the shift in macroeconomic policy in mid-2023.

Turban acknowledged that inflation remains high but is on a downward trajectory, emphasizing that both fiscal and monetary tightening must continue until inflation is under control.

“If the government achieves its medium-term program objectives and maintains this level of deficit in the long run, public debt and finances will be sustainable,” Turban said.

Risk of premature relaxation

He also noted that Türkiye’s Central Bank and fiscal institutions have committed to preserving the current stance.

“Looking at Central Bank communication, they are really clear that the monetary policy stance should remain tight until inflation is under control, and decisions on interest rates will be determined by the trajectory of inflation and expectations,” he added.

“We see a risk of premature relaxation, but it is a risk. The baseline for us is that we observe there is a strong commitment to those policies, and we see premature relaxation as a risk out of the baseline,” Turban said.

He further explained that macroeconomic reforms in the past two years have strengthened Türkiye’s external position and gross reserves, with net reserves excluding swaps turning positive for the first time since early 2020.

“However, the reduction so far has been observable but still significantly lower than the buildup that has occurred in the past two years,” Turban said. “We still see the increase in reserves as a really positive thing, and it has been critical.”

‘Unsustainably high’ growth in 2023

Before mid-2023, Turban noted that Türkiye’s growth was “unsustainably high,” but tighter policies have made it more stable.

The OECD expects Türkiye’s economy to grow 3.1 percent this year, partly due to continued monetary and fiscal tightening, which will create downward pressure on both inflation and growth.

“The potential growth of the Turkish economy right now for the OECD is assessed at around 4%. Potential growth is how much the economy can grow without putting too much inflationary pressure,” Turban said. “Our current projections show that in 2026, growth in Türkiye will return to this potential level—at this level, there’s no upward pressure on inflation.”

He emphasized that foreign direct investment and investor perceptions have improved due to macroeconomic measures, with credit rating upgrades contributing to growing international optimism.

“It is important to ensure that those investments are not volatile capital flows but more stable foreign direct investment,” he said. “This is part of the reason why we advocate for the policy stance to be maintained. Investor confidence can be built up.”

“Right now, what we have seen with communications from the Central Bank and fiscal authorities and from the decisions that have been taken in response to the current uncertainties, the commitment is there, and confidence in Türkiye is building up,” Turban concluded.

He stressed the importance of continuing this path to ensure that investor confidence continues to improve and that foreign investment flows become more permanent.