What awaits the Turkish economy in 2023?

2022 was a year in which many countries faced various economic difficulties. Inflation, which has risen to 10-15% in some countries, has made the fight against inflation one of the priorities of economic policy. However, many countries, including developed ones, are preparing to spend 2023 fighting inflation. Accordingly, a significant decline is expected in 2023.

On the other hand, inflation is one of the most important issues on the economic agenda in Turkey, which has moved away from traditional economic policies since the second quarter of 2021. Rising inflation due to changes in economic policy is said to be one of the main causes of the economic downturn. So what’s in store for the Turkish economy in 2023? Let’s look at the details together…

Can an interest rate cut lower inflation in the new year?

Turkey has been significantly separated from the rest of the world by the economic policies it launched in the last quarter of 2021. In parallel with this, the economic picture that developed in our country looked different than in many other countries. So much so that inflation peaked at 85 percent within a year. By the end of 2022, inflation is expected to fall to 70 percent at best. Unlike traditional economic approaches, Turkey has preferred the method of lowering the interest rate to fight inflation. So, could lower interest rates lower inflation in 2023?

Experts predict that inflation in Turkey will fall to a maximum of 40 percent in the new year. According to experts, the main reason for this decline will be a recession in Europe and falling commodity prices. In other words, external factors will play a role in a possible reduction in inflation, and not Turkey’s policy to reduce interest rates.

The “low interest” policy was one of the main causes of the economic downturn.

Turkey has been pursuing an extraordinary economic policy in recent years. While many countries around the world have preferred the method of raising interest rates in the face of inflationary pressures, Turkey has opted to cut interest rates. The reason for this extraordinary economic policy was due to “growth and disinflation.” It was argued that lowering interest rates would increase exports due to the low exchange rate, and this increase would strengthen TL, thereby removing the inflationary threat from low exchange rates. However, by the middle of the year, inflation reached 80 percent…

Thus, it was seen that the policy of low interest rates is not an effective weapon in the fight against inflation. After that, it was stated that the goal of “growth with inflation” was behind the policy of low interest rates. In other words, high inflation was mistaken for economic growth. In the new year, it is planned to maintain the growth target along with inflation.

Is it possible to grow with inflation?

In answering this question, last year’s economic data can be very helpful. In 2022, inflation in Turkey increased by 65 points. Unemployment fell by about 1 percentage point. On the other hand, looking at the growth figures, it can be seen that growth in 2022 decreased by 3.9 percent, while the share of the labor force in gross value added decreased from 29 percent to 26 percent compared to the same quarter of the previous year. year.

In light of these data, the experts said: “Was it the right policy to condemn a large part of society to poverty by reducing unemployment by one point, was there a more cost-effective way to reduce unemployment?” asks a question. In other words, according to many experts, “grow with inflation” is not a goal that has a real-life counterpart. Because long-term inflationary pressures have a negative impact on both economic growth and employment. Purchasing power is reduced due to inflation and the amount of investment is markedly reduced.

How will Turkey’s economic policy be shaped after the 2023 elections?

According to experts, the first half of 2023 will be the period of maintaining the “growth with inflation” plan and, accordingly, economic vulnerability will remain. The threat of inflation will be tried to be eliminated with the help of new measures and rules that can be implemented during this period. On the other hand, unless there is a change of government in the 2023 elections, no drastic changes in economic policy are expected.

So how much more sustainable is the current economic situation? According to experts, this question is not easy to answer. However, experts state that the current economic structure cannot be maintained in the long term and sooner or later there will be a return to traditional economic policy. However, some experts say that if the current policy is maintained, we can reach an economic growth rate of 3-4 percent by the end of 2023.

What happens if the government changes in the 2023 elections?

In the event of a change of government after the elections, a rapid return to traditional economic policies is predicted. However, a sudden rise in interest rates could pose a risk of slowing economic growth. Therefore, in the event of a change of government, it is assumed that interest rates will rise in a decisive and gradual manner.

However, a return to traditional economic policies in 2023 could bring growth below 3 percent. However, with the right monetary and fiscal policies, higher and more realistic growth targets can be achieved going forward. On the other hand, if the traditional economic policy is combined with other correct actions, it is possible that the volume of capital inflow and investment will increase, and the reserves of the central bank will increase.

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