Local currency credit growth slowed to 30% year-on-year in August 2024, from 69% a year earlier. A more restrictive policy mix is expected to prolong the economic slowdown in the near term, with real GDP growth of 3.5% in 2024 (although higher than a previous projection of 3.2%), and 3.2% in 2025 (unchanged), down from 4.5% in 2023.
Carefully managed policy adjustments resolve external imbalances and rebuild buffers
The continued benefits of Türkiye’s monetary policy, assuming the authorities stay the course, remain significant in putting the economy on a sounder footing in terms of financial stability and potential growth.
An important indicator of progress is the moderation of balance of payments tensions, due to lower financing needs and more diversified sources of financing.
The current account turned positive in June-July 2024 and the surplus will increase further if the current policy stance is maintained. On a calendar year basis, the current account deficit is likely to decline to 1.8% of GDP in 2024, from 4.0% in 2023.
This improvement in the current account is largely supported by a stronger trade balance, underpinned by lower energy and gold imports, in addition to dynamic merchandise exports and tourism receipts, as the depreciation of the lira drives external competitiveness, further supporting these trends .
Growing confidence in the authorities’ willingness to stick to a balanced policy mix also points to lower foreign exchange protected deposits and higher future foreign capital inflows, helped by Türkiye’s removal from the Financial Action Task gray list Force and lower US interest rates. Non-resident domestic debt rose from around 2% in December 2023 to 9% in July 2024, a sign of confidence in lira-denominated assets and lower dollarization of the Turkish economy.
Figure 2. Improvement in current account balance increases net foreign assets (NFAs)
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