Turkish economy to cool more than government expects: Reuters poll

ISTANBUL (Reuters) – Turkey’s economy will grow 3% this year and next, lower than the government’s recently updated forecasts, a Reuters poll of economists showed on Monday, pointing to a much deeper slowdown as authorities seek to douse rampant inflation.

Poll respondents also unanimously agreed the central bank would hold its key interest rate at 50% on Thursday, but eventually ease policy by 250 basis points by year-end.

Ankara launched its tightening drive in mid-2023 to reverse a years-long low-rates strategy championed by President Tayyip Erdogan to boost economic growth.

The central bank has since raised rates by 4,150 basis points, while the government adopted tax and savings measures meant to rebalance the economy and leave behind a series of currency crisis and price rises.

The drive to cool prices is expected to lower gross domestic product growth to average 3% this year and next, according to the median of 42 economists in the Oct. 8-14 Reuters poll.

That compares to the government’s prediction of 3.5% GDP growth this year and 4% next year, in its three-year policy roadmap. The economy grew 4.5% in 2023. 

GDP will rise 3.6% in 2026, the poll’s median showed. 

Natixis said the government had kept its promise of orthodox economic policies and announced fiscal consolidation and budget measures that had further squeezed growth and helped the central bank tackle inflation. 

“The impact from a much tighter policy mix on economic activity is, indeed, seen via a number of indicators … Recession is not yet on the table though as we anticipate a slowdown in the real GDP growth,” the investment management firm said. 

The central bank will announce its interest rate decision at 1100 GMT on Oct. 17.

In the poll, economists predicted it would not significantly ease policy until next year. The bank was forecast to have reduced rates by 20 percentage points to 30% by end-2025.

Economists expect the policy rate to fall to 42.5% in the first quarter of next year and to 35.0% in the second quarter, based on the median response. They expect the cutting cycle to be completed in the third quarter of next year, leaving the policy rate at 30.0%.

Tight policy, fiscal measures and base effects brought inflation down to 49.38% in September from a recent peak of 75.45% in May. 

The poll median showed economists expect inflation to fall to 43.5% this year and to 25.2% by the end of 2025. The government forecasts annual inflation will fall to 41.5% in 2024 and 17.5% next year.

Turkey’s current account deficit in 2024 is expected to be 1.8% of GDP this year and next, the median forecast showed, compared to a government forecast of 1.7% and 2.0% respectively.

(Other stories from the October Reuters global economic poll)

(Polling by Indradip Ghosh and Mumal Rathore; Writing by Ezgi Erkoyun; Editing by Jonathan Spicer and Alison Williams)