The ambitious dreams of President Recep Tayyip Erdogan include the construction of Turkey of the “regional economic center in world economic power” and stimulates the sixteenth world economy of the Top 10.
In the short term, the twelfth development plan of the country which is very popular with the Bi-Continental country (2024 to 2028) aims to improve its “international stature, to promote prosperity and to fight against inflation while maintaining solid public finances and sustainable ”. This objective will partly depend on the success of an associated foreign direct investment strategy aimed at considerably stimulating the IED at all levels. The objective is that Turkey represents 1.5% of world FDI and 12% of regional FDI by 2028.
While 2025 starts, how is it going well?
If the IDE is the main criterion, not so well.
The annual figures for 2024 have not yet been published, but will probably be close to the level of $ 10.6 billion in the previous year, against $ 13.7 billion in 2022, far from the 2007 peak of 22 billion Dollars and shy of $ 14 billion hoped earlier. This represents less than 1% of GDP, compared to 3% in 2007 and well below potential hopes and decision -makers.
“Foreign investors do not like 85%inflation”, the rate in October 2022, “and they do not like it a lot to 47%,” said the rate of November 2024, explains Charlie Robertson, manager of The macro strategy at Fim Partners, an investment fund based in the United Arab Emirates. “Persistent inflation has retained the FDI in Türkiye.”
Inflation and budgetary challenges
Turkish decision -makers have succeeded in restoring a certain stability to the national economy by reducing inflation with restrictive monetary and budgetary policies, although with a popularity of the government.
Local elections last March gave the Justice and Power Development Party (AK) that 35% of the votes against 52% of the national elections the previous year; Erdogan’s party now follows the opposition republican people’s party (CHP) in current polls.
“During the months since June 2023, when a new political team led by finance minister Mehmet Simsek, vice-president Cevdet Yilmaz, and the Central Bank of Turkey (CBT) have carried out net lifeline of non-orthodox policies, There have been many positive stages towards the rational development of policies, “explains Rafik Selim, principal economist for Turkey at the European Bank for reconstruction and development (BERD). “However, the challenges appeared along the way.”
The BERD expects Turkey to have a GDP gain for 2024 of 2.7%, going to 3% in 2025. Private consumption will be the largest loser because political decision -makers are concentrating on the increase in the Growth led by exports greater than the low current ratio of 20% of GDP.
The reduction in expenses remains difficult, however. The 2023 budget deficit was 5.2% and the 2024 level should be similar despite service reductions and tax increases. The main culprit is the expenses of the earthquake. Ankara has hired some $ 30 billion a year to help communities recover from the February 2023 earthquake that left several million homeless in the south and center of Turkey.
That said, an unprecedented reconstruction of houses and infrastructure should lead to growth.
“Without the earthquake, the deficit would be 1.1%, which is really not bad,” said Selim, adding that the estimated deficit of 2024 of 5% will probably fall to 3.1% this year.
Rebalance the economy
The latest inflation figures are moderately encouraging; 2024 ended with an annual sliding year rate of 44%, well below what was expected, thanks to the drop in food prices.
“Disinflation will probably continue this year, given the TCC signal that it will maintain its tight position despite the start of interest rate reductions, the real test in progress [Turkish lira] Assessment and improvement of the inflation of services, ”explains Muhammet Mercan, bank analyst. “We expect inflation to fall below 30% by the end of 2025.”
The current account deficit reduced to around $ 10 billion compared to the summit of $ 60 billion in 2023, allowing a reconstruction of the exchange reserves which made Turkey less dependent on external flows.
“The capital flows were good; Each recent connection and Sukkuk program has been three or four times overwritten while yields are falling, showing that risk perceptions are falling, “observes Selim.
The rating agencies approve. Last year, Fitch Ratings improved the sovereign debt of Turkey – next to a Turkish banks cover – twice, from B- to B + in March then in BB- in September, when he became The only country in 2024 until this time the three rating agencies.
“In a sense, we returned where we were in 2021, before these unconventional political methods which led to a spectacular deterioration of macroeconomics and prospects for financial stability of the country,” notes Erich Arispe, principal director and chief of the emerging European sovereigns of Europe with fitch notes.
The short -term growth prospects of Turkey reflect the current rebalancing of the economy, which will take time given the sticky inflation, maintains Arispe. In the absence of elections this year, the decline in dollarization, the increase in Forex reserves and a planned decrease in the budget deficit while expenditure of the earthquake is found to decline in encouraging signs.
“Turkey has the ability to grow,” says Arispe. “We expect 2.6% in 2025 and 3.5% in 2026, without creating other economic distortions. But it is a multi -year history, the economy being recalibrated to produce a higher sustainable growth environment ”and achieve the country’s export and potential.
Renewable energy and growth of electric vehicles
A new IDE strategy will favor regions, infrastructure and less developed renewable energies, explains Ahmet Burak Dagliogku, president of the Republic Investment Office of Turkey.
“The objective is to attract investments which contribute significantly to the development objectives of Turkey,” he adds, in particular “green transformation, digitization, high value and deeper integration services in global supply chains ”. These priorities “will help Turkey stay ahead of a global competitive market”.
The plans of the manufacturer of Chinese electric vehicles byd to build a 1 billion dollars factory in Turkey are only the kind of development encouraging that the government wants because the electric vehicle sector is one of the fastest in the country. The producer of the Turkish car Tog has now produced more than 50,000 vehicles. Electric vehicles are expected to represent 30% of the total automobile sales by the end of this year.
The penalty of being noted, given that its energy security has always been a concern, the government’s commitment to renewable energies. “Turkey will invest more than $ 100 billion by 2035 to increase its renewable capacity and modernize its infrastructure,” explains Dagliogku. “This vast investment plan highlights the unshakable dedication of Turkey to achieve its net-zero objective while guaranteeing energy security and economic growth.”
Meanwhile, Turkey has worked closely with BERD and other multilateral development lenders. Last year, the BERD hired around $ 22 billion, invested in nearly 500 projects and commercial facilitation lines.
“No, it’s not an accident,” said the Clebr Selim. “We and Turkey have great green, digital and inclusion ambitions that are linked and where projects have grown up, since almost half of our portfolio is in a sustainable infrastructure. We want to further increase the green energy capacity of Turkey, and five cities here are now part of our Green Cities program. The BERD has also worked with other banks on emissions related to the issue of green bonds and encouraging Turkish companies in the private sector to move on a low carbon content.
Prospects for 2025
Another promotion of the status of investment note by rating agencies would be a big step towards the realization of the broader ambitions of Erdogan.
“If you look back in the past eight years, there has always been something to scare investors and throw things off,” notes Selim: “An attempted coup, elections, a cocus The invasion of Ukraine by Russia, more elections. Investors are looking for a certainty and a sealing of policies for at least, for example, a period of three years. This is essential if Turkey wants to achieve its potential from 4% to 5% annual growth. »»
In the longer term, this potential is enormous and the private sector of Turkey has a remarkable capacity to adapt, says Arispe de Fitch. However, “it takes time to restore macro credibility and so that it sinks with investors,” he warns. Many factors underlying the potential of Turkey also endanger him, including his geographic location, the possibility of taking an indirect blow from higher prices in the United States and an exposure to changes in the feeling of investors.
“Many factors are beyond the control of Turkey-and in particular the current and very fluid international prospects,” he notes.
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