TEPAV: The decline in inflation will be long and costly

The Economic Policy Research Foundation of Turkey (TEPAV) has released the second version of its Turkey Economic Outlook Report. The report addresses economic growth, the labor market, inflation, public finance, the external sector, and risks, highlighting that if policy measures are not taken, the cost of inflation could impact social welfare.

The report states that while Turkey had the highest growth rate among OECD countries in 2023, its capacity for job creation was at the lowest level, and it warns that the cost of the disinflation process will be felt in terms of social welfare.

According to the report, due to the failure to observe the expected pullback in consumption, the previous growth forecast of 3.7 percent has been revised, and Turkey's economic growth in 2023 is now estimated to be around 4.2 percent. Furthermore, the economy is projected to slow down in 2024, with growth expected to be 3.2 percent and 3.5 percent, respectively.

The report emphasizes the expectation that the disinflation process will be long and costly, estimating that the policy rate could reach 45 percent in 2024, and that inflation could be 40 percent by the end of this year and 24 percent by the end of next year.

It was emphasized that if necessary policy measures are not taken during the disinflation process, the cost could fall on employment and social welfare.

According to the report, the fiscal outlook could deteriorate if revenue-increasing or expenditure-reducing measures are not taken in public finance. 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.

The report includes the forecast that public finances will continue to deteriorate due to earthquake-related expenditures, the pension system, high real salary increases for public personnel, and rising interest rates.

UNEMPLOYMENT PROBLEM WILL PERSIST

According to the report, the fact that growth does not create employment is also a notable point. It is stated that despite Turkey having the highest growth rate, its capacity for job creation is low, and the unemployment problem may persist if structural issues in the labor market are not resolved.