The significant slowdown in the growth rate of Turkish GDP during the 3rd quarter is mainly attributed to the limitation of household consumption
Turkey's annual growth rate in the third quarter was 1.9%, slightly lower than in the second quarter (2.4%), but both were much lower than in the first quarter of this year (6.7%). The slowdown was primarily due to the lower increase in household consumption, mainly due to the continued very high inflation. Despite the strongly restrictive monetary policy of the Central Bank of Turkey (CBT), with the key interest rate at 50% since March and the adoption of a series of macroprudential measures, the de-escalation of annual inflation has weakened significantly, as it fell from 52.0% in August to 49.4% in September and 48.6% in October. In addition, in the period July-October, monthly inflation hovered around 3%.
The resilience of inflationary pressures is mainly due to the increase in administratively determined prices (e.g. electricity, natural gas, water) and taxes (e.g. VAT on fuel) and secondarily to the depreciation of the Turkish lira, although milder than at the beginning of the year, as well as to increased food inflation. The restraining effects of administrative measures on deflation were highlighted in the Eurobank Research article in “Kathimerini” on August 10, as was the serious possibility that inflation at the end of 2024 would exceed the then estimate of the Central Bank of Greece (38%), which was revised upwards in early November (44%), as was the forecast for December 2025 (21% from 14%). The new forecast of the Central Bank for the end of 2025 came from upward revisions of the assumptions for the administratively determined prices, as well as for the underlying inflation trend in general.
As for the possible actions of the central bank if inflation deviates again from the targets, the approach of taking other macroprudential measures was maintained at the Monetary Committee meeting in November, without a new increase in the base rate. In any case, inflationary pressures on household consumption in 2025 are expected to be stronger than predicted earlier this year, which is reflected in the recent downward revision of the IMF's forecast for Turkey's growth rate next year, to 2.7% from 3.2%.
