Introduction to Turkey’s Economic Outlook
Turkey is working to keep its disinflation on track into 2026, despite facing challenges from a strong US dollar. The country is trying to attract investors and improve its deal appetite, with estimates suggesting $8.2 billion in mergers and acquisitions (M&A) last year.
Why It Matters
For Markets
Expectations can influence prices before inflation does. If the survey shows that inflation expectations remain stable, investors may believe that interest rates can stay high without losing credibility. This could support local assets and ease pressure on the lira. However, if expectations rise, markets may start pricing in a longer period of tight policy and higher risk premiums, especially with the strong dollar making it harder for emerging markets to attract inflows.
The Bigger Picture
Consistency is key. While stronger M&A activity is a positive sign, long-term investors want predictable rules and a steady policy path. Any doubts about continuity, whether due to domestic politics or external risks, can quickly increase Turkey’s risk premium, even if day-to-day trading appears calm.
Impact of US Dollar Strength
The strong US dollar, fueled by positive US data, has cooled hopes for near-term Federal Reserve cuts. This tends to tighten financial conditions for emerging markets like Turkey. To counter this, Turkey is engaging in investor outreach and showing signs of improving deal appetite.
Conclusion
In conclusion, Turkey’s economic outlook is closely tied to its ability to manage inflation expectations and attract investors. While the country faces challenges from a strong US dollar, it is taking steps to improve its deal appetite and attract long-term capital. Consistency and predictability will be crucial in maintaining investor confidence and supporting the local economy. If Turkey can successfully navigate these challenges, it may be able to keep its disinflation on track and support economic growth into 2026.
