OECD: Turkey's Growth Expected to Slow Due to Implemented Macroeconomic Stability Policies

Forex - The OECD has reported in its "Economic Outlook" published today that due to the macroeconomic stability policies implemented by Turkey slowing domestic demand, economic growth in Turkey is expected to decline to 3.5% in 2024 and 2.6% in 2025. In its May "Economic Outlook" report, the OECD had predicted that the Turkish economy would grow by 3.4% this year and by 3.2% in 2025.

The OECD noted that "Tightening financial conditions and ongoing fiscal consolidation will limit household consumption. As the effects of the post-earthquake reconstruction fade, both investment and public consumption will slow down." However, it emphasized that an increase in exports is expected due to improvements in the external environment and the continuation of revival in international tourism.

The OECD forecasts that with the diminishing effects of stability policies, GDP growth is expected to recover to 4% in 2026. It stated, "The mix of fiscal and monetary policy is rightly tight and should remain so until inflation moves firmly toward the target. Despite the ongoing moderate price trend, high inflation expectations and significant inertia continue to pose upward risks to the inflation outlook." The OECD also mentioned that structural reforms, stabilization of the macroeconomic framework, and current efforts to enhance long-term growth potential could further support growth, adding, "In particular, labor market reforms will help increase the creation of high-quality registered jobs."

The OECD also observed, "Unemployment will rise slightly but will remain around 9%," pointing out that measures to control inflation will have an effect, but inflation will still only decline gradually, remaining above the 5% target throughout the forecast period. The primary risk to the outlook stems from the possibility of loosening current macroeconomic stability policies, which could lead to higher inflation and increased instability. In contrast, more reliable policy improvements in fiscal, financial, and monetary matters could enhance investor sentiment and strengthen growth."

In Turkey, where inflation continues to remain high, the OECD expects the policy rate to stay at 50% until the first quarter of 2025, before decreasing to 20% in the second half of 2026 as inflationary pressures ease. The average inflation forecast for 2024 has been announced as 59.3%, for 2025 as 29.7%, and for 2026 as 17.2%. In the May report, average inflation expectations were 55.5% for 2024 and 28.7% for 2025.

The OECD, anticipating that the unemployment rate will be 8.8% this year, also predicted that unemployment, which is expected to rise to 9.0% in 2025, will decline to 8.6% in 2026. In the May report, the unemployment rates were estimated to be 9.3% for 2024 and 10.0% for 2025.