World Bank lifts Türkiye’s growth forecast for 2023

ISTANBUL

The World Bank has revised its economic growth forecast for Türkiye for this year upward from a previous 3.2 percent to 4.2 percent.

“Growth is projected to increase to 4.2 percent in 2023 because of resilient household consumption and reduced policy uncertainty,” the bank said in its Europe and Central Asia Economic Update report.

The bank forecasts the Turkish economy to expand by 3.1 percent next year and 3.9 percent in 2025, a downward revision from its previous estimates of 4.3 percent and 4.1 percent, respectively, in June.

“Gradual fiscal consolidation is expected to continue supporting fiscal balances, and the macro-financial stabilization alongside lira depreciation and policy support to exporters is expected to further narrow the current account deficit,” the bank said.

The international lender stressed that the new economic team, under Finance Minister Şimşek and Central Bank Governor Hafize Gaye Erkan, has started normalizing macro-financial policies and outlined more measures in the September Medium Term Program to remedy imbalances in the economy.

Distortive financial regulations are being unwound, including easing maintenance requirements on securities that require banks to hold government bonds and rolling back the FX-protected deposit scheme, alongside fiscal consolidation through tax increases, it noted.

Despite recent prioritizing of policy tightening and disinflation, a pre-election stimulus could increase short-term growth, while aggravating already-elevated external risks, the report warned.

“The outlook faces considerable uncertainty related to the macroeconomic policy stance in the run-up to the March 2024 municipal elections and the phasing out of the FX-protected deposit scheme and heterodox regulations distorting the financial sector,” the bank said.