If Türkiye maintains its current macroeconomic policy trajectory, the recent rebound in international investor confidence could advance further and the economy could return to a sustainable growth path next year, according to the Organisation for Economic Co-operation and Development (OECD).
Since it shifted to more conventional policymaking in mid-2023, Türkiye has seen improvements across key macroeconomic indicators: the current account deficit has narrowed, and both inflation and inflation expectations have begun to ease gradually, Sebastien Turban, the OECD Türkiye economist, said on Wednesday.
Türkiye has been implementing an economic program centered around tight monetary policy, mainly aimed at curbing stubborn inflation, shifting to more conventional policymaking from years of loose policy.
Annual inflation slowed to 38.1% in March. It marked the lowest since December 2022 and extended the fall from a peak of around 75% last May. It is expected to ease to 31.4% by the end of 2025 and ease to 17% the year after, the OECD said in its latest Economic Survey of Türkiye, published on Friday.
The central bank’s year-end inflation estimate currently stands at 24%.
Despite remaining high, inflation is on a downward trend, Turban said. “Fiscal and monetary policies are broadly aligned with our forecasts. The current tight stance should be maintained until inflation is fully brought under control,” he noted.
“If the government meets the targets in the Medium-Term Program and keeps budget deficits at these levels in the long run, public debt will remain sustainable.”
The Turkish central bank has initiated an easing cycle and cut its policy rate to 42.5% gradually in the past three scheduled meetings. Before that, it raised the rate by 4,150 basis points to cool inflation.
Turban emphasized that the central bank and fiscal authorities have shown a strong commitment to the program’s objectives.
“The central bank’s communication clearly states that tight monetary policy will be maintained until inflation is under control, and that interest rate decisions will be based on inflation and expectations,” he noted.
While acknowledging the risk of premature monetary easing, Turban said that this does not represent the OECD’s base scenario, which assumes that policymakers will stay the course.
Reserve buildup
Turban also highlighted the positive impact of Türkiye’s policy shift on its external position. He noted that total foreign exchange reserves have risen substantially over the past two years, and net reserves, excluding currency swaps, turned positive in 2024 for the first time since early 2020.
Despite some drawdown in reserves due to recent volatilities, the decline is relatively modest compared to the gains accumulated over the past two years, he said. “So overall, the buildup in reserves is still a very positive development.”
According to Turban, before the policy shift, Türkiye’s growth levels were “unsustainably” high. The current fiscal and monetary tightening has helped bring growth closer to more sustainable levels, he said.
The report on Friday showed OECD forecasts moderate growth for the Turkish economy, with gross domestic product (GDP) expected to rise by 3.1% in 2025 and 3.9% in 2026.
As in any economy, Turban said, tight policies do create pressure on growth and inflation in the short term. “We see that this slowdown in growth is primarily triggered by macroeconomic policies aimed at bringing inflation back onto a sustainable path,” he added.
“Then, as the economy normalizes, according to our current forecasts, economic growth is expected to return to its potential at 3.9% in 2026. According to the OECD, Turkey’s potential growth rate is at the level of 4%,” the economist said.
Potential growth reflects how much the economy can expand without creating excessive inflationary pressure.
“Based on our current projections, Türkiye’s growth is expected to return to this potential level in 2026. At these levels, there will be no upward pressure on inflation,” Turban noted.
Investor sentiment
Turban also pointed to improving sentiment among international investors, crediting recent upgrades by credit rating agencies as one sign of renewed confidence.
There’s growing optimism among foreign investors, but he says there is still a road ahead.
“It is crucial for foreign investments coming into Türkiye to consist of direct foreign investments, which are more permanent in the economy, rather than volatile capital flows. That’s why we advocate for maintaining the policy stance,” Turban said.
Confidence can be further strengthened over time, he noted.
“In response to recent developments, we observe a commitment to sustaining policies through the communication of the central bank and economic authorities and the decisions taken against uncertainties,” Turban said.
“This way, trust in Türkiye can increase, and these foreign investment flows can become more stable.”
