Portfolio investments, which have signaled a return to Turkey with the change in economic policies, are closely monitoring the normalization process for a decision to increase volume.
Eric Robertsen, Head of Research at Standard Chartered, and Farooq Pasha, Middle East/North Africa Economist at Standard Chartered, evaluated the outlook for the global economy and the expectations for the Turkish economy for EKONOMI daily.
According to Pasha, foreign inflows have recently resumed in bonds and the stock market, and the increase in foreign capital inflows next year will depend on the continuation of normalization steps.
Stating that they do not expect a recession or a hard landing in the US, but that they anticipate a serious slowdown in growth, Robertsen said that they expect the ECB to start cutting interest rates in the second quarter and the Fed in the third quarter. Stating that foreign inflows to Turkey in bonds and the stock market have resumed in recent months, Pasha said that the increase in foreign capital inflows next year depends on the continuation of the recent policy normalization.
Stating that they expect the CBRT to continue raising interest rates for the rest of 2023, albeit not as aggressively as in the MPC meetings of the past months, Pasha said that they have raised their year-end CBRT policy rate forecast to 40 percent from 35 percent previously.
* Do you think that the long-standing tight monetary policy of the leading central banks to fight inflation has come to an end? Do you think that the inflation problem has been largely overcome?
Robertsen: At Standard Chartered, we believe that both the US Federal Reserve (Fed) and the European Central Bank (ECB) have reached the end of their rate hike cycle. The inflation problem has not yet been fully resolved, but inflation has fallen significantly in both the US and Europe and is expected to fall further in the first half of 2024. In the US, we don’t expect a recession or a hard landing, but we do expect a significant slowdown in growth. I don’t like the term soft landing, but we expect a decline in growth and inflation. The slowdown in Europe has been more pronounced. We expect the ECB to start cutting interest rates in the second quarter and the Fed in the third quarter.
* What should we expect from 2024 in terms of an already fragile global economy, what kind of global economic outlook can we expect under the current geopolitical conflicts?
Robertsen: We can say that the theme of 2024 will be decoupling. We expect global growth to remain slightly below 3.0%, but we think there will be a serious divergence picture all over the world, there will be significant divergences. For example, the US is avoiding recession, but recession is looming for Europe. China will grow by 4.8 percent, while most of Asia will grow by more than 5 percent. The Gulf countries (oil exporters) are expected to grow by 4.0% or more, but oil importers and the wider MENA region could see growth well below 4%.
* The new economic administration that took office after the elections in Turkey has returned to traditional policies. Do you think the CBRT’s steps, these traditional policies will lead to increased foreign capital flows to Turkey?
Pasha: The CBRT has raised interest rates by a total of 2,650 basis points since the appointment of the new economic management following the elections in May. The slowdown in retail sales and the reduction in external imbalances are the first signs that the ongoing monetary tightening is leading to a slowdown in aggregate demand. We expect the CBRT to continue raising interest rates for the rest of 2023, albeit not as aggressively as in recent meetings. In our opinion, the monetary policy decision in October and the latest inflation report strengthens the likelihood of further rate hikes for the rest of 2023. In the latest inflation report, the CBRT not only revised its inflation forecasts upwards, but also revealed that it intends to implement additional monetary tightening to address various economic imbalances. We have raised our year-end CBRT policy rate forecast to 40 percent from 35 percent previously.
As for our views on the ongoing policy mix in line with orthodox policies, we believe that if the recent coordinated monetary, fiscal and macroprudential measures to rein in domestic demand and address market distortions continue, the first positive results could be seen in the first half of 2024. Foreign inflows into Turkish assets (bonds and the stock market) have resumed in the last few months. The continuation of the recent normalization policy under challenging domestic economic conditions (high inflation and external imbalances) will play an important role in any increase in foreign capital inflows next year.
Growth to slow, pace of price increases to slow
* What are your inflation, growth and current account deficit forecasts for Turkey this year and next year?
Our macroeconomic forecasts for the next two years are currently under review. For 2023, I can say that our final GDP growth forecast is 2.5% and our average CPI inflation forecast is 50% per annum. We expect the current account deficit to be 5.5% of GDP. The macroeconomic trajectory going forward will continue to depend on the continuation of the policy normalization that started in the second half of 2023. Under such a scenario, we expect a slowdown in overall growth, a deceleration in the pace of price increases and a narrowing of the current account deficit in 2024. The first signs in this direction will emerge towards the end of the first half of the year.