Türkiye's 2025 Economic Outlook: Growth, Challenges & Opportunities
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Türkiye's 2025 Economic Outlook: Growth, Challenges & Opportunities |
Amongst all these internal hurdles and external pressures, one important question arises: will internal and external pressure help Turkey redefine its economic outlook for the times to come? Some Reflections for 2024
The Turkish economy completed 2024 with several records despite the big domestic and global challenges. Recently, President Recep Tayyip Erdogan pointed out that Turkey had achieved continuous growth in 17 consecutive quarters, while in the third quarter of 2024, it expanded by 2.1%, with an average growth rate of 3.2% for the first nine months of the year. These figures point to the continuity of the uptrend in the economy.
Erdogan further hinted that Turkey's national economy went up from $1.13 trillion in 2023 to $1.26 trillion in 2024 according to an annualized comparison, whereas he projected per capita income over $15,000 in 2024 and upwards to $17,000 in 2025.
The president underscored the achievement of the Turkish economic policy, which managed to get inflation down to 44.38% on an annualized basis this past December.
The key achievement was a reduction in the foreign trade deficit from $106.3 billion in 2023 to $82.2 billion in 2024, which is a $24 billion improvement.
Erdogan said Turkish exports to the European Union increased 4.2% to $108.7 billion, while those to member states of the Organization of Islamic Cooperation rose 6.1% to $70.1 billion. The United Kingdom, the United States, and Saudi Arabia were among the top export destinations for Turkey in 2024, with import values up 22.2%, 9.9%, and 52%, respectively.
The Central Bank of Turkey also said its key interest rate was being cut by 250 bps to 47.5% from 50%, where it had been for some time. A move in this sense was a nod to a wider rate-cutting cycle, while the central bank also announced the reduction of Monetary Policy Committee meetings from 12 to 8 starting from 2025.
A Path to Success:
The year 2025 is the tipping point in many aspects for the Turkish economy," said Christian Witoska, Deutsche Bank's head of research for Eastern Europe, the Middle East and Africa, who called Turkey's economic performance a "remarkable success story" despite the lingering uncertainties.
Witoska said that increasing the minimum wage by more than 30% may raise some obstacles to inflation control, because in general a 10% increase in wages causes a 3-3.5% rise in inflation. In the same context, Finance Minister of Turkey Mehmet Şimşek said the government would be able to achieve economic stabilization with structural reforms; he described 2025 as an important year for managing the economy.
Şimşek, in his speech during the "2024 Evaluation and 2025 Forecast" meeting organized by the Independent Industrialists and Businessmen Association, underscored the gradual improvement in Turkey's economic program. The government is targeting a rate of inflation of around 20% at the end of 2025, which will pave the way for single-digit levels in the following years.
He referred to global trends, such as stable commodity prices and low inflation, as good background for Turkey's goals. Even though there is uncertainty due to the changing trade policies of the United States or changes in China's export approach, Şimşek was confident in the resilience of Turkey's economy. He explained this by the fact that 62% of Turkey's exports go to countries with free trade agreements, which protects the country from some external shocks.
Şimşek concluded by identifying the main pillars of economic sustainability for 2025: structural reforms, further enhancing financial stability, increasing reserves, and narrowing the current account deficit.
The Economic Roadmap:
In September, Turkey announced its economic program for 2025-2027, featuring ambitious targets of reducing inflation to 41.5% by the end of 2025, and to 9.7% by 2026. It targeted real GDP growth of 4% for 2025, but global institutions made more conservative estimates. The International Monetary Fund forecast growth at 2.7%, close to the World Bank's 2.6% and the Organization for Economic Cooperation and Development's same rate.
The program also specified fiscal targets and projected a 3.1% budget deficit-to-GDP ratio in the year 2025 to demonstrate fiscal discipline and sustainability.
On the labor front, the jobless rate is seen increasing moderately to 9.6% in 2025 on the back of economic rebalancing but is set to fall to 9.2% in 2026 and to 8.8% by 2027. On currency valuation, the program had forecast an average exchange rate of 42 liras per U.S. dollar in 2025. Projections were different for various financial institutions, however, with the central bank forecasting 43.2 liras and Credit Agricole seeing 36 liras.
Inflation: The Lingering Priority:
Turkish economic analyst Bilal Bagish said that inflation control still lies at the heart of the Turkish economic agenda because it's related to sustainable growth and equitable income distribution.
Bagish warned that any potential U.S. administration trade policies—increasing tariffs—could have a slight inflationary impact on global inflation and growth, while sustained high global interest rates, especially in the U.S., might put further pressure on emerging markets, of which Turkey is a part.
A unique problem for Turkey is the reliance on dollar-denominated raw material imports and euro-denominated exports. A seesawing euro-dollar exchange rate erodes export revenues and makes economic planning more cumbersome.
Nevertheless, he praised the recent monetary and fiscal policies in Turkey that have been able to reduce the current account deficit and increased foreign reserves, thereby stabilizing the national currency. He also credited the policymakers for achieving most of the goals outlined in Turkey's medium-term economic program.
However, Bagish warned that a very rapid reduction in interest rates could result in demand-pull inflation if not well managed. He said that structural reforms should be prioritized to address the persistent productivity challenges and to consolidate the recent gains in inflation control and economic stability.
Outlook for 2025:
Bagish said, "2025 could be the turning point for Turkey, provided of course the nation seizes those emerging opportunities." Stabilizing conditions in Syria and facilitating refugees to return can ease social and economic pressures in Turkey while also allowing the latter to redirect the resources toward development.
He thus concluded that the acceleration of structural transformations and the enhancement of reform initiatives would be crucial for the attainment of a stable and sustainable economy. In this context, 2025 represents an opportunity to reshape the economic future of Turkey and place it on a path of enduring growth.