Citi and Morgan Stanley Analyze Turkiye’s Economic Slowdown Amid Tight CBRT Monetary Policies
Turkiye’s Economic Outlook: Foreign Banks Provide Insights
Following the release of recent growth and inflation data, foreign banks have offered their perspectives on Turkiye’s economic trajectory, highlighting the challenges and uncertainties ahead.
Turkiye’s Economy Q2 2024: Slower Growth Than Expected
Turkiye’s economy expanded by only 2.5% in the second quarter of 2024, falling short of the anticipated 2.95%. This slowdown was largely influenced by the Central Bank of the Republic of Turkiye’s (CBRT) tight monetary policies, which have been instrumental in curbing inflation but at the cost of economic momentum.
- Growth Figures:
- Actual Growth: 2.5%
- Expected Growth: 2.95%
- Primary Cause: Tight monetary policy
Inflation Trends: August 2024
Inflation in Turkiye rose by 2.47% month-over-month in August 2024, aligning with market expectations. The primary driver behind this increase was the hike in natural gas prices for residential use. Despite this monthly rise, annual inflation decreased from 61.78% to 51.97%.
- Inflation Highlights:
- Monthly Increase: 2.47%
- Annual Rate: 51.97%
- Key Driver: Natural gas price increase
Citi’s Economic Forecast: A Cautious Outlook
Citi Research projects that Turkiye’s economy will contract in the third quarter of 2024 and continue to weaken in the fourth quarter. The firm cites tightening financial conditions, normalization in private consumption, and weakening exports as key factors. Additionally, Citi warns of the risks associated with an early easing of monetary policy, which could exacerbate economic challenges.
- Citi’s Key Insights:
- Projected Q3 Contraction
- Fourth-Quarter Weakness
- Early Easing Risks
Morgan Stanley’s Position: Stability in Interest Rates
Morgan Stanley maintains its stance that the CBRT will not alter its interest rates this year. The bank’s confidence is bolstered by the alignment between the latest inflation data and the CBRT’s guidance. Moreover, Morgan Stanley anticipates that the slowdown in domestic demand will become more evident by October 2024, with inflation projected to close the year at 42.4%.
- Morgan Stanley’s Expectations:
- No rate changes in 2024
- Slower domestic demand by October
- Year-End Inflation Forecast: 42.4%
The Road Ahead: Navigating Economic Challenges
Both Citi and Morgan Stanley acknowledge the complexities of managing Turkiye’s current economic environment, particularly in the face of potential stagflation. The CBRT’s decisions in the coming months will be critical in shaping the economic landscape, with November being a pivotal month for possible policy shifts.
- Looking Forward:
- Challenges of stagflation
- CBRT’s potential actions
- November as a key month for policy decisions
As Turkiye navigates through these economic challenges, the global financial community will be closely monitoring the CBRT’s moves and the broader implications for the Turkish economy.
Source: NTV / Prepared by Irem Yildiz