2022 has been a challenging year both for Turkey and the Global Economy. Here are my expectations for the Turkish economy in 2023.
1/Inflation
Inflation saw a 24-year high at 85% in October 2022 mostly due to its unorthodox interest rate policy. However, inflation is expected to ease this year. Inflation fell to 65% in December. The Central Bank predicts 19.2% inflation by the end of 2023, but many economists predict end of 2023 inflation to be 40-45%.
2/ Interest Rate Policy
TCMB is likely to keep rates stable for a while after giving Erdogan the single-digit rate he wanted. The presidential election is sure to shape economic policy. If Erdogan loses the presidency, we might see a policy reversal and rate increases aimed at reducing inflation. If Erdogan holds on to the presidency, we might see rate cuts in line with his growth and employment promises.
3/Growth
As a global recession is predicted in 2023 Turkey's GDP growth is predicted to ease. The economy had already shown signs of slowing in the middle of 2022 but was stimulated by aggressive rate cuts. Turkey's economy is predicted to grow by 4.1% in 2023, compared to 5% growth in 2022.
4/Exchange Rates
In 2023, the Turkish lira is expected to fall further in value, as most central banks tighten monetary policy. The lira lost 46% to the dollar in 2022. The rate is projected to be between 22-24 at the end of 2023. The lira is also expected to lose to the pound and the euro.
5/Markets
I think the Turkish market is overvalued right now. 2022 has been a great year for the BIST with high returns and many record highs. In the new year, the earning growth of the companies in the BIST index is expected to be lower. I don't think we'll see positive real returns (returns adjusted for inflation) in 2023. And we might even see a market correction.
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