OECD Chief Economist Is Optimistic About Turkish Economy

Clare Lombardelli, Chief Economist of the Organization forEconomic Development and Cooperation (OECD), made a statement tothe AA correspondent regarding the Economic Outlook Reportpublished by the OECD today and the developments in Turkiye and theworld economy.

Stating that the changes made in the monetary and fiscal policyin Turkiye in the last year or so are satisfactory, Lombardellisaid, "Tight monetary and fiscal policy is the step that theeconomy needs most in the face of a major problem such asinflation. Inflation is still high in Turkiye, but we expect it todecrease. Currently, the policy rate in Turkiye is 50 percent, andwe anticipate that this level will need to be maintained for therest of the year and possibly until the second quarter of 2025 that, we may see easing, but this largely depends on thecourse of inflation.”

Lombardelli noted that the Turkish economy grew by 4.5 percentin 2023 and said that they expect growth of 3.4 percent this yearand 3.2 percent in 2025.

Saying that there will be some slowdown in the economy due totightening steps in this context, Lombardelli made the followingevaluations:

"There is a significant amount of investment due to the need forreconstruction in the earthquake zone. It is clear that thisincreases demand. In addition, as the global economy revives, weexpect Turkiye's exports to increase. Therefore, we have reasons tobe optimistic about the Turkish economy, but we believe that atight policy stance will be needed to reduce inflation. We do notexpect any relaxation in the policy. Since we think the current 50percent level of policy interest is reasonable, we anticipate thatthe policy will remain tight at least until next year."

Lombardelli pointed out that it takes time for the tighteningsteps in monetary and fiscal policy to be reflected in the economyand stated that it will take time for inflation to decrease inTurkiye.

Noting that there may be some loosening in monetary policy ifinflation falls, Lombardelli added that, in the foreseeable future,it is important to maintain this tight monetary stance and monitorwhether additional tightening is required.

Stating that inflation decreased faster than expected due to theincrease in policy rates of central banks around the world,Lombardelli said that geopolitical risks may still pose risksregarding inflation.

Lombardelli, however, informed that they increased their growthforecast for this year in the global economy to 3.1 percent.

Stating that consumer demand is strong in some countries andlabour markets are performing better than expected, Lombardellisaid, "We have increased our growth forecasts in some countries,especially the USA and India."

Lombardelli stated that they foresee a growth of 2.6 percentthis year and 1.8 percent in 2025 in the US economy, which grew by2.5 percent last year, and that the rate in the Indian economy,which grew by 7.8 percent in 2023, will be 6 percent this year andin 2025. She explained that they expected it to be 6.

Underlining that the Eurozone will have a very difficult year in2023, Lombardelli said, "Many economies in the Eurozone, includingGermany, have entered a recession. When we look ahead, of course,there are risks, but we do not foresee a recession in any Europeaneconomy. This year, the Eurozone We calculate that the growth willbe 0.7 percent in 2025. When we consider last year's growth and ourforecast for 2024, there is a big difference between the Europeancountries and the US economy. We will see this difference narrowingslightly in 2025 to 1.5 percent for the Eurozone and the USeconomy. We expect 1.8 percent growth for the economy."

Explaining the expectations of central banks regarding interestrate cuts, Lombardelli stated that interest rate cuts have beenseen in some developing economies, but they predict that centralbanks in developed economies will start cutting interest ratesafter the second half of this year.

Lombardelli underscored that the timing of interest rate cutswill vary depending on the countries' own conditions and continuedas follows:

"We think that the interest rate cut in Europe will startearlier than in the USA, which reflects the relative strength ofthe economies in question. We expect the interest rate cut inEurope to start in the third quarter of the year, but depending onfuture data, this may be pushed a little earlier. In the third andlast quarter of the year, there may be two interest rate cuts, butwe may also see faster action from the European Central Bank. Weexpect the US Federal Reserve (Fed) to cut interest rates in thethird quarter or later. We also expect two interest rate cuts fromthe Fed in the third quarter. However, all these developmentsdepend on future inflation data.

If inflation does not fall as expected in most countries, thenthese interest rate cuts may need to be postponed slightly. Servicesector inflation, which is especially upward in some countries, isimportant at this point. The US position in terms of interest ratecuts will be important for many countries due to its impact on thedollar exchange rate. In this context, we may see furtherdivergence among economies towards loosening monetary policy."

Stating that they expect the opposite policy in Japan,Lombardelli said, "We expect a very slow increase in interest ratesin Japan. This increase may continue in the second half of thisyear and 2025."

Lombardelli pointed out that China's position is differentcompared to other countries and the weaknesses in the Chineseeconomy. Noting that they expect solid growth in the Chineseeconomy this year, Lombardelli said, "However, we estimate thatgrowth will slow down, and therefore we may see a differentapproach in monetary policy."

According to the OECD Economic Outlook Report, the world economygrew by 3.1 percent last year. Growth was 3.4 and 1.7 percent inG20 and OECD countries, respectively.

While the global economy is expected to grow by 3.1 percent thisyear, this rate is expected to reach 3.2 percent in 2025. Growth isestimated to be 3.1 percent in G20 countries and 1.7 percent in theOECD this year.

The Chinese economy, which grew 5.2 percent last year, isexpected to grow 4.9 percent this year and 4.5 percent in 2025.

While growth in the US economy will be 2.5 percent in 2023, thisrate is expected to be 2.6 percent and 1.8 percent in this year and2025, respectively.

In the Eurozone, it is estimated that the 0.5 percent growth in2023 will increase to 0.7 percent this year and 1.5 percent in2025.

In the Turkish economy, which grew by 4.5 percent last year,this rate is calculated to be 3.4 percent this year and 3.2 percentnext year.

According to the OECD, economic growth is expected to be 0.2percent this year in Germany, 0.4 percent in the United Kingdom,2.6 percent in Russia, and 1.9 percent in Brazil.

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