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Turkish economy expected to grow at 3.4 percent this year

The Turkish economy is expected to grow at 3.4 percent this year and 3.2 percent in 2025, the Organization for Economic Cooperation and Development (OECD) said Thursday, revising up its February projection of 2.9 percent for 2024.

In its economic outlook report, the OECD said Türkiye’s real GDP growth was projected to slow from 4.5 percent in 2023 to 3.4 percent in 2024.

Tighter financial conditions and the adverse impact of inflation on purchasing power in the country will subdue household consumption, the report said, reminding that inflation peaked at the beginning of this year but will remain elevated over 2024 and 2025.

Despite tighter financial conditions, short-term indicators showed still solid domestic demand growth at the beginning of 2024, the OECD said.

Consumer goods production and retail sales increased at the beginning of the year, and activity in the construction sector remained dynamic due to rebuilding and repair efforts unfolding in areas hit by earthquakes in February 2023, according to the report.

Total investment will remain strong as earthquake-related reconstruction continues and as an improved external environment helps restore export growth, it added.

However, inflation remains stubbornly high, with the annual inflation rate reaching 68.5 percent in March. “Although inflation expectations have decreased in recent months, they remain well above the inflation target of 5 percent,” said the OECD.

The main risk for the projection is spiraling inflation, which could be triggered by untimely policy relaxation or concerns about the credibility and independence of the central bank, the report said.

Moreover, higher costs arising from further disruptions to transportation and trade could have significant negative effects on the economy, according to the OECD.

In contrast, growth could be boosted further by a stronger influx of foreign investment due to credible improvements in fiscal, financial and monetary policy, it added.

Introducing structural reforms would support macroeconomic stabilization in Türkiye, according to the Paris-based organization’s report.

Famagusta Gazette