Fitch Solutions: Disinflation in Turkey is Slowing Down

The Disinflation Process in the Turkish Economy is Slowing Down

SEVCAN ERSÖZLÜ/BLOOMBERG HT RESEARCH

Fitch Solutions BMI macroeconomist James Bennett stated in an interview with Bloomberg HT that economic growth in Turkey is quite strong in the short term. However, he noted that the disinflation process has significantly slowed down.

Fiscal Policy and Economic Risks

Bennett conveyed that the "no-landing" scenario specified for Turkey is the current base scenario, indicating that growth will continue to be supported, but inflation will struggle to fall below 25%. He warned that fiscal discipline may not strengthen and the budget deficit could remain at high levels until 2024.

Credit and Inflation Pressures

Bennett mentioned that the strong monthly increase of 2% in bank loans, while supporting economic activity, has hindered the easing of inflationary pressures. He emphasized that both headline and core inflation remaining below the monthly level of 1.5% indicate that the disinflation process has slowed considerably.

Foreign Investor Interest and Future Expectations

Bennett noted that the interest of foreign investors in Turkey has started to revive, but inflows remain limited. He stated that permanent capital flows would be possible with the strengthening of macro stability and the persistent decrease of inflation.

He added that the country offers long-term investment opportunities alongside its industrial infrastructure and demographic advantages in the region, but high labor costs and an overvalued TL weaken its competitiveness.