Turkey’s government looks set to release an official GDP growth figure of 3.5% y/y for 2024, according to the new medium-term economic programme (OVP) released on September 5.

In the previous OVP published in September 2023, the Erdogan administration pencilled in a 4% GDP growth rate.

Technical recession on cards

As things stand, a technical recession (negative official GDP growth figures posted for two consecutive quarters on a q/q basis) is on the cards.

On November 29, the Turkish Statistical Institute (TUIK, or TurkStat) will release its 3Q24 data.

On September 2, it released a 0.1% q/q official growth rate for 2Q24.

On November 29, a revision to a minus 0.X% q/q rate for 2Q24 and the announcement of a minus 0.Y% rate for 3Q24 would do the job for the announcement of a technical recession.

Rate cuts in 4Q

In this case, rather than launching the rate-cutting cycle with 250-bp cuts in October and/or November, a 500-bp cut could commence the cycle in December, based on the technical recession argument.

The next monetary policy committee (MPC) meetings are scheduled for September 19, October 17, November 21 and December 26.

In August, the MPC of Turkey’s central bank kept its policy rate unchanged at 50% for the fifth straight month.

The rate-setters at this point look set to again stick with the 50% benchmark on September 19. The way things are shaping up, a rate cut is expected in the fourth quarter.

End-2024 inflation to come in at 40-42% y/y

The new OVP also points to the regime planning to release end-2024 official inflation at 41.5%.

On August 8, Turkey’s central bank kept its end-2024 official inflation "target" unchanged at 38% in its latest quarterly inflation report.

The upper boundary of the forecast range was also left unchanged at 42%.

Since August 8, bne IntelliNews has been parroting: “As things stand, the Erdogan regime is getting ready to release an official inflation figure at around 40-42% at end-December.”

On November 8, the central bank will release its next inflation report and updated forecasts.

Positive real rate in September

On September 3, TUIK said that Turkey’s consumer price index (CPI) inflation officially stood at 52% y/y.

TUIK’s inflation series peaked at 75.45% in May. It is now quickly falling back to the 40%s thanks to the base effect.

Putting out a headline figure of below 40% would perhaps prove too much of a tall order even for the country’s infamous statistical institute.

On October 3, TUIK will release official September inflation and the annual figure will fall below the policy rate for the first time since July 2021.

Fed to cut on September 18

Looking at the global markets, no further turbulence following that of August 5 is visible. Turkey’s CDS remain below the 300-level, while the yield on the Turkish government’s 10-year eurobonds is still testing below the 7%-level.

In June, the European Central Bank (ECB) delivered a rate cut while the Federal Reserve (Fed) is expected to deliver a rate cut on September 18 at its upcoming rate-setting meeting.

Burning through reserves

Since September 2, the Erdogan administration has been aiming to push the USD/TRY rate to below the 34.00-line. The pair is currently drawing a line in the 33.90s and 34.0s.

Following a rebuilding of reserves, the central bank’s reserve quality is no longer negative.

The possibility of there being an insistence on keeping the USD/TRY pair flat, something that was seen prior to the appointment of the new economic management in June last year, is not visible at this point in time.

However, since end-July, the central bank has been burning through its reserves once again, albeit so far at levels that are not hurting.

With August, portfolio flows turned negative. There is now a short window ahead for renewed inflows prior to the possible shake-up in November.

Tweet: Carry trade turned into outflows and it was felt in the reserves.

USD/TRY forecasts

The Erdogan regime does not release USD/TRY forecasts or targets. In the OVPs, it releases a lira-denominated GDP target and a USD-denominated GDP target.

The conversion to dollars is made through the central bank’s average daily USD buying rate.

Vice President Cevdet Yilmaz said during the OVP press conference held on September 5 that use is made of the central bank’s monthly expectations survey and that no meaning should be ascribed to the USD/TRY rates used in the OVPs.

In the latest OVP, the USD/TRY rate for 2024 was presented as falling to 33.2 from 36.8. The exporters were weeping, lamenting and gnashing teeth again.

Fiscal comedy

Meanwhile, finance minister Mehmet Simsek’s talk of fiscal tightening continues to do its job on market sentiment. However, in the absence of a technical recession and/or with continuous losses in reserves, the finance industry might again question his budget dynamics.

In the new OVP, Simsek cuts the budget deficit target for 2024 to 4.9% of GDP from the previous 6.4% of GDP. Not bad, or better than nothing.

What's this about 2025?

In assessments of the new OVP, the GDP growth and inflation targets for 2025 attracted criticism. Critics argued that describing a fall in inflation from 41.5% (end-2024 target) to 17.5% (end-2025 target) along with a 4% GDP growth (2025 target) comes across as absurd.

First of all, 2025’s GDP figure will be released in March 2026 and end-2025 inflation will be released in January 2026. By these dates, Turkey is more than capable of experiencing a few dozen "game changers".

In September 2025, updates will be released in the latest OVP. By then, the central bank will have updated its inflation targets.

Secondly, who knows what mathematically-flexible official statistics body TUIK is capable of releasing. Perhaps it could go for 10% growth and 10% deflation in 2025. The circulating "critics" in question would then have a job on their hands attempting to spin yarns to explain how such numbers could have happened, as it is quite clear that they are not able to question the validity of TUIK’s statistical releases. 

Poor always cry

In the case of Turkey and the Erdogan regime, the following always bears repeating.

The poor are crying. They're wailing. The poor always cry and wail and it is the interior ministry’s job to attend to this, it is not the “orthodox” economy personnel’s problem.

Whenever a few people come together on the street, they are swept up by the police.

Hope is the poor man’s bread. They can eat it to their heart's content. Inflation will fall and some structural reforms are on the horizon.