News Analysis: Türkiye hopes to reap benefits of economic U-turn over 2024

by Burak Akinci

ANKARA, Dec. 30 (Xinhua) — Türkiye is hoping to see a sustained economic recovery in 2024 following a dramatic turnaround in its economic policy in 2023, which has been marred by soaring inflation and a struggling currency for years. However, experts warn that the road to recovery will be long and challenging.

This year, the country shifted from ultra-loose monetary policy to fiscal orthodoxy with a new financial team led by Treasury and Finance Minister Mehmet Simsek taking charge in early summer.

Significant interest rate hikes since June have caused the policy rate to spike from 8.5 percent to 42.5 percent in just seven months, raising hopes that the country can rein in its rampant inflation.

Arda Tunca, an independent economist from Istanbul, noted that the tight monetary measures implemented since June lay the groundwork for future impact on inflation, with the expectation that these measures will start to affect inflation in the latter half of 2024.

He also emphasized that monetary measures alone will not be adequate and that structural reforms are necessary to address Türkiye’s income disparities and build resilience against inflationary pressures.

Despite inflation reaching above 85 percent in October 2022 and remaining above 60 percent, there has been a slight decrease in monthly increases from summer highs of around 9 percent to about 3 percent in recent months.

The central bank anticipates annual inflation to peak above 75 percent in May before beginning a disinflationary trend, bringing consumer prices down to 36 percent by December 2024.

President Recep Tayyip Erdogan stated that annual inflation is expected to drop significantly after June, claiming that Türkiye’s economic health is improving.

Although the Turkish lira had dropped nearly 30 percent against the dollar in the first half of 2023, the rate of depreciation has slowed. This is positive news for inflation, as Türkiye heavily relies on imports.

Türkiye’s Foreign Economic Relations Board President Nail Olpak expressed optimism, noting that foreign investors are showing positive signs following the switch to orthodox policy-making.

Olpak also mentioned that there are positive signals from both the Middle East and Europe, with stronger foreign interest in Turkish assets anticipated after the March 2024 local elections.

Municipal elections are a major point of interest for economists who fear that the Ankara government may make decisions focused on pleasing voters in the short term, potentially derailing the current disinflation trend.

Another concern is that while high interest rates are expected to control disinflation, they will also create financial challenges for small and medium-sized businesses, making borrowing costs prohibitively high.

Senol Babuscu, a former senior banker and Ankara-based scholar, warned of an increased likelihood of economic slowdown and bankruptcies in the real sector due to rising credit costs.

Babuscu also noted that this could lead to an increase in non-performing loans for banks.

Despite the challenges, international experts are cautiously optimistic about Türkiye’s prospects for recovery. Timothy Ash, a senior strategist at RBC Bluebay Asset Management, sees a positive turn, expecting 2024 to bring “really exciting” prospects, including disinflation, a stabilized lira, and an increase in investment in Türkiye.