Capital Economics view (June 2024): Turkey's policy shift took a set back at the start of the year amid stronger-than-expected inflation and a decline in foreign capital inflows, but the 500bp interest rate hike in March and passing of the local elections at the end of the month have renewed investor optimism. A surge in capital inflows has helped to rebuild the central bank's FX reserves in recent months and the lira has been remarkably stable.

The scale of the challenge to reduce Turkey's macro imbalances is large and will take years. Domestic demand is still too strong, the budget deficit is far too wide and the current account deficit is adjusting only slowly. Still, the commitment among policymakers to macro orthodoxy has given us reason for optimism and we think there's a case to take a positive view on the medium-term outlook. If we're right that disinflation will soon set in, local currency bonds have the potential to deliver comparatively high returns among EMs over the next couple of years and Turkey's sovereign risk premia could remain at low levels.

This webpage hosts our key research and analysis on Turkey's policy shift since May 2023. It includes a data dashboard of the most important and timely indicators of Turkey's economy, our analysis of recent central bank meetings and key data releases, as well as a table of our key economic and financial market forecasts.

Key Turkey Forecasts