Turkey revises up inflation estimates in economic programme

Turkey forecast higher inflation and a widening budget deficit in an update to its three-year economic programme at the weekend.

Consumer price inflation was seen at 65 percent at the end of the year, the government said in the programme for 2023-2025 published in the Official Gazette. In the central bank’s quarterly inflation report in July, year-end CPI was forecast at 60.4 percent. The government said measures such as subsidies and caps on rents had limited inflation, which extended a two-decade high to 80.2 percent in August.

Turkish President Recep Tayyip Erdoğan’s government has prioritised economic growth over the battle against inflation by implementing unorthodox policies, including coercing the central bank into cutting interest rates even when inflation was accelerating. The bank shocked investors last month by cutting interest rates to 13 percent from 14 percent.  

The government expects an increase in production and productivity to help limit inflation going forward. It said a rise in food prices, which have more than doubled on an annual basis, would be reduced to single digits within three years. Inflation was expected to slow to 24.9 percent next year and to 9.9 percent by the end of 2025, it said. The central bank’s official medium-term target for inflation is set at 5 percent.

The budget gap was expected to grow to 461.2 billion liras, or about 3.2 percent of gross domestic product (GDP), by the end of the year and to 659.4 billion liras in 2023, the government said. This year’s deficit was forecast at 278.3 billion liras in the 2022 budget approved by parliament late last year.

Turkey expects a year-end current account deficit of $47.3 billion, equivalent to around 5.9 percent of GDP. The deficit was seen more than halving to $22 billion, or 2.9 percent of GDP, next year, it said. The forecast for 2025 was for a deficit of $10 billion.

The economy was expected to grow by 5 percent this year and in 2023, and 5.5 percent in 2024 and 2025, the government said.

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