Turkey Economic Forecast

The economy accelerated in annual terms in Q1, surprising markets on the upside. The uptick was driven by stronger domestic demand. That said, growth slowed in sequential terms, dented by February’s earthquakes. Turning to Q2, available data points to healthy activity: The manufacturing PMI was above Q1’s average in April–May, while consumer sentiment strengthened in the same period. In politics, on 28 May, President Erdogan won the run-off election with 52% of the vote. The opposition has not disputed the result; consequently, domestic political instability will remain limited. However, concern over the direction of economic policy under Erdogan pushed the lira to an all-time low of TRY 20.8 per USD on 1 June. Later, on 3 June, the president named his new cabinet. Notably, he appointed market-friendly former Minister of Economy Mehmet Simsek as Minister of Finance.

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 remaining around its current level in the coming quarters, markedly above the Central Bank’s 5.0% target.