Turkey Economic Forecast

Economic growth should have slowed in Q1, as the earthquakes that hit the country in February heavily dented activity in the affected areas; in February, industrial output contracted at the sharpest rate since the onset of the Covid-19 pandemic. Shifting to the current quarter, April data shows some promise: The manufacturing PMI ticked up, while inflation declined. That said, consumers grew more pessimistic in the month. In politics, on 14 May, the country will elect a new president and Parliament. Polls suggest a very tight contest between Erdogan and the opposition. The election could be a turning point. Under Erdogan, the presidential system and unorthodox economic policies would likely remain in place. If the opposition wins, the country could revert to a parliamentary republic and economic orthodoxy.

Inflation came in at 43.7% in April, down from March’s 50.5% and marking the sixth consecutive fall. The decline was driven by a broad-based moderation in price increases due to a high base effect. Inflation is seen around current levels in the coming quarters, markedly above the Central Bank’s 5.0% target.