Inflation and minimum wage forecast for Turkey from US banking giant! How much will the increase be?

While high inflation, the cost of living, and the exchange rate breaking record after record have caused the Turkish Lira to lose value, millions of citizens are struggling to make ends meet.

While there was no interim hike for the minimum wage in July, millions of employees have turned their eyes and ears to the 2025 minimum wage increase.

The US investment bank, Morgan Stanley, has announced its forecasts for Turkey's interest rates, inflation, and minimum wage for 2025.

As reported by Cumhuriyet, the published report states that the Turkish economy is at an important turning point, while making notable predictions, especially regarding inflation and interest rates.

DECLINE IN GROWTH

According to the report, policy changes, monetary tightening, and normalization in the fiscal stance implemented since May 2023 have reduced Turkey's macro imbalances and increased confidence. Deposit dollarization has decreased, foreign inflows have increased, and the reduction in the Central Bank's foreign exchange-protected deposits was noteworthy. With this shift, while the share of Turkish Lira deposits in the total has increased, external borrowing rates have risen and the current account deficit has decreased significantly.

However, the report drew attention to the slowdown in economic activity. Growth, which was 5.3 percent in the first quarter of 2023, fell to 2.5 percent in the second quarter. Industrial production and PMI data also remained weak. The fact that retail sales recorded growth and consumer confidence recovered showed that domestic demand remained resilient.

INFLATION EXPECTATION REMAINED STABLE

Regarding inflation, Morgan Stanley stated that core inflation is responding to tight monetary policy and that services inflation has remained stable. However, it was emphasized that price increases in the service sector stem from the removal of some price controls and high inflation expectations.

30 PERCENT INCREASE EXPECTED IN MINIMUM WAGE

The forecasts for the minimum wage were also striking. While a 30 percent increase is expected in 2024, inflation is expected to fall to 26 percent by the end of 2025.

This scenario includes the forecast that inflation will gradually decrease and interest rates will also fall. It is estimated that the Central Bank will enter a rate-cutting cycle, but it is noted that the monetary stance will remain tight and macroprudential measures will continue.