Overview of Turkey’s Economy
Current Economic Situation
The Central Bank Governor, Fatih Karahan, has announced that demand-driven price pressures in Turkey are easing. This conclusion is based on the breakdown of August’s inflation numbers and the country’s second-quarter growth. In an interview with Bloomberg, Karahan explained that despite higher-than-forecasted headline GDP growth, the components of the GDP data indicate that demand conditions continue to support disinflation.
Key Economic Indicators
The Turkish GDP growth accelerated from 2.3 percent in the first quarter to 4.8 percent in the second quarter. Additionally, annual inflation eased to 32.95 percent last month, despite a sharper-than-expected monthly rise of 2.04 percent. Private consumption has been negative for two consecutive quarters, which further supports the idea that demand-driven price pressures are easing.
Central Bank’s Outlook on Inflation
Karahan emphasized that the main indicators of the underlying inflation trend offer "a healthier assessment." These indicators show that price rises are continuing to ease. However, the central bank is keeping a close eye on the impact of increases in rent and education on inflation expectations. The official targets will be used to determine the tightness of monetary policy in the current and near-term period.
Monetary Policy and Interest Rates
The bank estimates that inflation will be between 25 percent and 29 percent by the end of 2025. It also expects annual inflation to decline to 24 percent at the end of this year and 16 percent by the end of 2026. Karahan suggested that investors may have been too hasty in reducing their forecasts for interest-rate cuts. After August inflation came in above forecasts, analysts are revising down their expectations for the size of the Central Bank’s rate cut at next week’s policy meeting.
Conclusion
In conclusion, Turkey’s economy is showing signs of easing demand-driven price pressures, with private consumption being negative for two consecutive quarters and annual inflation easing. The Central Bank is keeping a close eye on inflation expectations and will use official targets to determine the tightness of monetary policy. While investors have revised down their expectations for interest-rate cuts, the bank remains committed to achieving its inflation targets. Overall, Turkey’s economic situation is complex, but the Central Bank’s efforts to support disinflation and stabilize the economy are ongoing.
