TEPAV is launching a new series on the Turkish economic outlook, based on the policies recently implemented or announced by the Turkish authorities, and global developments and expectations. The report will be published twice a year.

The report is prepared by Dr. Burcu Aydın Özüdoğru, Director of TEPAV's Center for Economic and Structural Policies. It covers global prospects, domestic policies, and the outlook on economic growth, labor market, inflation, public finance and external sector, and risks to the outlook.

The highlights of the first report of the Turkish Economic Outlook series are as follows...

Domestics policies announced towards more orthodoxy should be backed up by further actions

Deterioration in inflation expectations, exchange rate shocks and tax hikes following the elections will likely to cause inflation remain high during the second half of 2023 and the first months of 2024. Based on the inflation targets announced at the Medium-Term Program, TEPAV considers it would be necessary for the Central Bank to hike the policy interest rate to 40 percent this year and 45 percent next year. Based on this, TEPAV forecasts that inflation will rise to 66 percent by the end of 2023, fall to 39 percent by the end of 2024, and to around 26 percent by the end of 2025.

Budget deficit may exceed current expectations due to a slowdown in growth

TEPAV points out a deterioration in the budget deficit, driven by higher expenditures and limited rise in revenues due to a slowdown in economic growth. Given this, the ratio of public sector deficit to GDP is estimated to be 7.1 percent in 2023, 8.2 percent in 2024 and 5.5 percent in 2025. The ratio of central government debt stock to GDP is projected to be 40 percent in 2024 and 44 percent in 2025.

Current account deficit may fall below 4 percent of GDP in 2024 with the normalization in domestic demand

TEPAV analysts expect the current account deficit to decline with the normalization in domestic demand. Simulations suggest that the current account deficit to GDP ratio could be around 4.4 percent of GDP in 2023 and 3.9 percent in 2024.

Slowdown in domestic demand and therefore growth may restrict employment opportunities in the short term

Economic growth forecasts are 3.7 percent for 2023, 2.9 percent for 2024 and 3.4 percent for 2025. The slowdown in growth will like to reduce employment growth and increase unemployment. The unemployment rate is expected to be 11.7 percent in 2024 and 12.8 percent in 2025.

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