I specifically used the word fortune telling in the title. Because the current period does not allow us to make accurate predictions. Trouble breaks out somewhere at any moment, waves of war flare up, in addition to these, the Eurozone, one of the four largest economies in the world this year, is struggling with recession, China, the other one, continues to lose its former momentum, and Japan is giving extremely weak signals on the way out of the long-standing recession. . Although the US economy seems to be in the best shape among the four major economies, the fact that there are elections this year makes the situation uncertain. These developments fluctuate oil, natural gas, gold and commodity prices. When Turkey’s unique uncertainties and troubles are added to all these, the work becomes largely fortune telling rather than guessing.
Below are the IMF’s new forecasts for the Turkish economy. Although the IMF’s forecasts extend to 2028, I did not include beyond 2024 here. Even the predictions made for the year 2024 stand between prediction and fortune-telling, but anything beyond that is now strictly fortune-telling, so I have not included them here. Let me first share the table and then try to interpret it (source for the data in the table: IMF, World Economic Outlook Database, April 2024).
The IMF expects Turkey to grow 3.1 percent in 2024. My expectations are a little higher. The reason why I expect a higher growth is that Turkey has not yet entered into a sufficient monetary tightening and continues to follow a loose fiscal policy. I don’t think it would be right to expect growth to drop significantly in a year when the budget deficit doubled. Consumption continues at full speed, and since growth is mainly consumption-based and earthquake expenditures must also accelerate this year, I estimate that the growth will be between 3.5 and 4 percent.
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It is expected to increase to 41.453 billion TL at current prices. As you know, the expression “at current prices” means unadjusted GDP, which includes inflation. In other words, the sales prices of goods and services are collected from the market, put on top of each other, and GDP is obtained at current prices. Therefore, these prices also include the price increases (inflation) of that year. According to the IMF’s estimate, the dollar equivalent of this is 1.114 billion USD. From here we calculate the annual average exchange rate as 37.21. Accordingly, the IMF estimates that the TL will lose 57 percent of its value against the dollar in 2024. If we apply this estimate to the year-end exchange rates exactly, we can conclude that the IMF estimates the 2024 year-end USD/TL exchange rate as 47 TL. Although the decrease in imports and therefore the current account deficit in the first two months strengthens the possibility of the exchange rate being realized in line with this forecast, it should not be overlooked that the decrease in imports is largely due to the restriction on gold imports.
If these predictions come true, per capita income in Turkey will exceed 475 thousand lira annually in 2024. The dollar equivalent of this is 12,765 USD. So, according to this calculation, the average monthly income in Turkey is 39,597 lira or 1,064 dollars. If we look at the accounts with purchasing power parity, per capita income appears to be 43,921 USD for 2024. The monthly equivalent of this is $3,660. I am not saying this, this is how the calculation made with purchasing power parity comes out. GDP calculation at current prices is problematic in two respects in countries like ours that experience high inflation and suppressed exchange rates: (1) There are price increases in the GDP calculation, that is, these accounts are not adjusted for inflation. That’s why it turns out to be higher than it actually is. (2) GDP, which is calculated in TL and includes inflation, is divided by the annual average USD/TL exchange rate to obtain GDP in dollars (GDP at current prices in USD = GDP at current prices in TL / Annual average dollar rate.) In this case, the lower the dollar exchange rate. The higher the GDP in dollar terms. One of the important reasons why the Central Bank tries to suppress the dollar exchange rate is to increase the GDP in dollar terms and to show the per capita income higher than it is: This is the most important reason why billions of dollars of foreign exchange reserves are spent. The situation of refugees should also be added to these. Refugees’ contributions to production are included in GDP calculations, but they are not included in the population when calculating per capita income, that is, when dividing GDP at current prices by the population. Thus, our per capita income is much higher than it actually is. If you ignore all these illusions, you can be happy when the average per capita income in Turkey according to purchasing power parity is 3,660 dollars per month.
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According to the IMF’s forecasts, investments and savings will decrease in Turkey in 2024. I guess that the decline in savings is based on the expectation that real interest rates will continue to be negative. Where people earn negative real interest, they reduce their savings and increase their spending. On the other hand, in an environment where interest rates remain low compared to inflation, investments must increase. Despite this fact, the only explanation for the decline in investments should be the failure to provide the necessary environment of confidence for investment.
The IMF has calculated the unemployment rate as 9.6 for 2024. We can say that there is an increase in unemployment consistent with the estimate that growth will decline to 3 percent.
The IMF estimates that the annual average inflation will be 59.5 percent in 2024 and 45 percent at the end of the year. The 45 percent rate for the end of the year indicates an expectation of approximately 10 points above the Central Bank’s expectation. If the IMF forecast is correct, inflation will drop from 64 percent (2023 year-end value) to 45 percent in one year. A significant part of this decrease will have occurred not because of the effect of the implemented and claimed to be tight monetary policy, but as a result of the removal of the high inflation rates in July and August (more than 18% in total for two months).
According to the IMF’s estimates, the increase in imports seems to be at par with the increase in exports. I don’t know whether the restriction on gold imports is included in these estimates or not, but I predict that the increase in imports will remain slightly lower than exports.
The public sector gross debt stock seems to have settled somewhere around 30 percent. Türkiye has a burden below the public sector debt burden of many countries.
Having had a deficit of 50 billion dollars in the last two years, it seems that it will decrease to 30 billion dollars in 2024, and its ratio to GDP is 2.8 percent. A current account deficit of 2.8 percent can be considered a normal level for a country like Turkey that has to import oil and natural gas.
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Since this article is an economic evaluation article, I did not discuss financial values here. However, an evaluation without considering the reserves of the central bank, the external debt burden of the private sector and the central bank, the relationship between banks’ loans and deposits, and the status of exchange rate protected deposits would be incomplete. Therefore, this article should only be considered as an observational article.
Original Article
