Turkish economy turns positive as confidence rises, inflation expectations decline

​​​​​​​By Erhan Cihan Unal

The Turkish economy is on a positive course as confidence indices have been increasing since the second half of the year, while real sector and household expectations for 12-month-ahead inflation declined, and positive expectations for the future of the economy increased.

The economic confidence index, which reached the threshold of 100 in March, fell in subsequent months, landing at 93.1 in August, and it recovered, reaching 98 in October, its five-month high.

The consumer confidence index started rising after hitting its lowest at 75.9 in July. It saw a steady increase in the following months, reaching 80.6 in October, its highest in 16 months.

The real sector confidence index started the year at 102.9 and declined to 98 in August. The index rose again in October to 102.2, recording its highest in five months.

The services confidence fluctuated throughout the year, hitting a four-month high at 114.2 in October.

- Inflation expectations down

The 12-month-ahead annual inflation estimates by the Turkish Central Bank (TCMB) reached its highest in recent years at 45.28% in October 2023, declining to 27.44% in October 2024.

The annual inflation estimates for the real sector peaked at 70.1% in November 2022 and fluctuated before falling. The rate reached its 15-month low at 49.5% in October.

Meanwhile, the 12-month-ahead annual inflation estimates for households was higher than the other two sectors, at 88.27% in August 2023, fluctuating and falling to 68.23% in October -- its lowest in two and a half years.

- Improvements in macroeconomic data to accelerate permanent decline of inflation

Sefer Sener, economics professor at Istanbul University, told Anadolu that the inflation estimates of the three sectors for the next 12 months have more or less declined since August 2023, and the return to rational policies by the economic administration provided the downward acceleration in inflation estimates.

“The recent positive course in essential macroeconomic data, such as the current account deficit, budget balance, and the unemployment rate, have had positive effects on inflation -- the improvement in macroeconomic data, coupled with the increase in the TCMB’s (Turkish Central Bank) reserves, indicates that inflation is falling sustainably,” he said.

“The increase in both portfolio and foreign direct investments (FDIs), the decline in the country’s risk premium and upgrades to its credit rating, and as well as its removal from the (Financial Action Task Force FATF) Grey List indicate that the fight against inflation has been successful, despite the bumps in the way,” he said.

“Although inflation fell to 49.38% on an annual basis as of September, estimates are still high, and despite the resilient and high inflation estimates in the public opinion, estimates have been falling since August last year, and as estimates fall, so will inflation -- if the determination of monetary policy and macroeconomic policies are maintained, the decline in inflation will accelerate further,” he added.

Sener noted that so long as the pressure from the exchange rates is kept to a minimum and the excessive price increases are tackled more effectively, inflation and inflation estimates will fall.

He highlighted that Türkiye’s economic confidence index continued to rise in October, and the rise contributed to the general expectations that the future of Türkiye’s economy will be positive, and other confidence indices have been above their threshold values, which indicates that sectors are optimistic regarding the future.

He added that the increase in expectations for the general economic situation in the coming 12 months signals consumer expectations will be positive next year, despite difficulties.

*Writing by Emir Yildirim in Istanbul