TEPAV: Macroeconomic stabilization should consider social welfare In the second edition of the Turkish Economic Outlook prepared by TEPAV, it is stated that the cost of the disinflation process will be on social welfare should it not be accompanied by any policy measures.

TEPAV released its second series on the Turkish Economic Outlook, based on the policies recently implemented or announced by the Turkish authorities, and global developments and expectations.

The Outlook is prepared by Dr. Burcu Aydın Özüdoğru, Director of TEPAV's Center for Economic and Structural Policies. It covers global prospects, domestic policies, and the outlook on economic growth, labor market, inflation, public finance and external sector, and risks to the outlook.

The highlights of the report are as follows...

Economic growth will be around 4.2 percent in 2023

TEPAV revised its 2023 growth forecast from 3.7 percent to 4.2 percent given the robust growth of domestic demand.

Turkish economy will slow down in 2024

TEPAV expects high interest rates and tight financial conditions to slow economic growth, while international portfolio flows will contribute positively to growth. TEPAV’s economic growth forecasts are 3.2 percent in 2024 and 3.5 percent in 2025.

The disinflation process will be long.

TEPAV predicts that the policy rate will peak at 45 percent in 2024 and that monetary policy will remain tight throughout 2024-26. Inflation forecasts are 40 percent at the end of this year and 24 percent at the end of next year.

The fiscal outlook could deteriorate if no revenue-generating or cost-cutting measures are taken

Expenditures are expected to rise sharply due to earthquake-related expenditures, the pension system, public personnel costs, and rising interest rates, while revenues are expected to increase moderately due to low domestic demand and employment growth, a narrow tax base, and high informality. The ratio of the central government budget deficit to national income is projected to be 5.9 percent in 2024 and 4.3 percent in 2025, while the ratio of central government debt to national income is projected to be 31 percent in 2024 and 35 percent in 2025.

Growth does not create jobs

The report states that Turkey will have the highest growth rate among the OECD countries in 2023, but the lowest employment rate at the same time. In this context, the report forecasts that the unemployment rate would be around 11 percent in 2024 and 2025. It emphasizes that unless structural problems in the labor market are addressed, rigidities for youth, women and disadvantaged groups will persist.

The full report is available here.