IIF report: Foreign capital inflows to Turkey expected to increase in 2025
The Institute of International Finance (IIF) reported that it expects net capital inflows from non-residents to increase in 2025, provided that Turkey maintains its orthodox policies.
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The IIF has published its report on capital inflows to emerging economies.
According to a report by Bloomberght, it was stated that total capital inflows to emerging countries are expected to increase by approximately 220 billion dollars this year, reaching 903 billion dollars, driven by a strong recovery in foreign direct investment and portfolio equity.
In the report, which also includes assessments regarding Turkey, it was noted that tighter policies helped the country's current account deficit fall from 24.6 billion dollars in the first quarter of 2023 to 10.9 billion dollars in the first quarter of 2024, and enabled the attraction of a significant amount of net capital flows from non-residents.
The report stated, "In the event that orthodox policies are maintained, net capital inflows from non-residents to Turkey are expected to increase in 2025."
The report, which noted that short-term expectations regarding net capital inflows to Turkey depend on whether investors find the wide yield spreads offered by Turkish assets sufficiently attractive, especially considering that continued tight policies will further reduce Turkey's internal and external vulnerabilities, stated that wider interest rate differentials are expected to help Turkey attract sufficiently large capital flows.
The report stated that despite the projected slowdown in Turkey's real Gross Domestic Product (GDP) growth until 2025, it is expected to exceed the average growth of industrialized countries, and this positive growth differential is expected to be another factor attracting sufficiently large foreign capital to Turkey, particularly in the form of net inflows of portfolio and foreign direct investment from non-residents.
The report noted that following the recent credit rating upgrades for Turkey by S&P and Fitch, net inflows of portfolio capital and foreign direct investment from non-residents are estimated to increase moderately until 2025, while net external borrowing from non-resident creditors is expected to decrease due to slowing real GDP growth and weak credit demand.
The report recorded that net capital inflows from non-residents are estimated to decline from 66 billion dollars in 2023 to 62 billion dollars in 2024, before rising to 68 billion dollars in 2025.