Fitch Solutions: Disinflation in Turkey is Slowing Down.

Disinflation Process in Turkey’s Economy is Slowing Down

SEVCAN ERSÖZLÜ/BLOOMBERG HT RESEARCH

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

Fiscal Policy and Economic Risks

Bennett conveyed that the "no-landing" scenario he outlined for Turkey is the current baseline scenario, stating that growth will continue to be supported but that it will have difficulty lowering inflation below 25%. He warned that unless fiscal discipline strengthens, the budget deficit could remain high until 2024.

Credit and Inflation Pressures

Bennett noted that the strong monthly increase of 2% in bank credits, while supporting economic activity, has prevented alleviation of inflationary pressures. He emphasized that both headline and core inflation remaining below the 1.5% monthly range indicates that the disinflation process has significantly slowed down.

Foreign Investor Interest and Future Expectations

Bennett mentioned that interest from foreign investors in Turkey has begun to revive, but that inflows remain limited. He stated that sustained capital flows would only be possible with the strengthening of macro stability and a permanent decrease in inflation.

He added that the country offers long-term investment opportunities due to its industrial infrastructure and demographic advantages in the region, but that high labor costs and an overvalued Turkish Lira have weakened its competitiveness.