World Bank revises up Türkiye's 2023 economic growth forecast from 3.2% to 4.2%

By Ovunc Kutlu

ISTANBUL (AA) - The World Bank on Thursday revised Türkiye's economic growth forecast for 2023 to 4.2%, up from its previous projection of 3.2%.

The upward revision is a result of "reduced policy uncertainty and resilient consumer demand," the institution said in a statement, adding that reduced uncertainty reflects "the positive steps the authorities have taken to normalize macroeconomic policies following the May 2023 elections."

Economic growth, however, is likely to slow in 2024 and 2025 as "domestic demand cools in the face of rising interest rates and gradual fiscal consolidation," it added.

The World Bank now expects the Turkish economy to expand 3.1% in 2024 and 3.9% in 2025, down from its previous estimates of 4.3% and 4.1%, respectively, made in June.

"At 3.8 percent year-over-year, the second quarter growth in Türkiye surprised on the upside as well, with consumption expanding at double-digit rates and government spending remaining strong," the institution said in its Europe and Central Asia Economic Update report.

"However, the rate of decline of exports of goods and services increased to 9 percent, from 2.6 percent in the first quarter of this year, which, together with a shift toward a tighter monetary policy stance, could limit further growth later this year," it added.

The World Bank emphasized that investment growth in Türkiye increased to 5.1% in the second quarter of 2023, due to strong activity in services and construction, and reconstruction efforts after the earthquake in February.

However, "the current account deficit in Türkiye widened to $42.3 billion in January-July of this year, up by over 31 percent from a year earlier, because of the continued strength of imports, including gold, and falling goods exports," it added.

"From June to September, Türkiye’s central bank increased its policy rate to 30 percent, which translates into a cumulative tightening of 2,150 basis points, as the government and the monetary authorities have been pivoting toward more conventional macroeconomic policies to curb runaway inflation," it added.

The report noted that debt and equity portfolio inflows have picked up since the election in May, alleviating pressures on foreign exchange reserves, which rose to $72 billion in early September from $56 billion at the end of May.