EBRD sees Turkish growth slowing on tighter policy

The European Bank for Reconstruction and Development (EBRD) expects Türkiye’s economy to grow by 2.7 percent in 2024, down from its previous forecast of 3 percent, amid expectations of a continued tightening of monetary and fiscal policy in the face of persistently high inflation.

The Bank expects Türkiye’s economic growth to increase 3 percent in 2025.

The forecasts were published today in the Bank’s Regional Economic Prospects report, which expects an uptick in the EBRD regions to 3 percent in 2024 from 2.5 percent in 2023.

The report notes that Turkish economic policy has tightened, with increases in taxes and stronger macroprudential policy measures. Since June 2023, the Central Bank of the Republic of Türkiye has hiked its policy rate nine times, bringing it to 50 per cent from 8.5 percent.

The country’s growth was driven by the services sector last year, with post-earthquake reconstruction efforts also having an impact.

A return to the more orthodox policy since June 2023 has improved confidence among domestic and international investors, with Türkiye recently receiving its first sovereign rating upgrade from a major rating agency in over a decade.

However, downside risks remain in the form of high inflation, slower growth in Europe, the rise of geopolitical tension in the region and tighter global financing conditions in light of high short-term external financing needs.

The EBRD is one of Türkiye’s key institutional investors, with €19.8 billion invested in 442 projects and through trade finance initiatives since 2009, 93 percent of it channelled to the private sector.