ISTANBUL: Turkey's economy in 2024 underwent significant transformation, characterized by crucial policy changes aimed at addressing inflation, stabilizing financial markets, and setting the stage for sustainable growth. The year saw a shift from stringent monetary policies to a more balanced approach, reflecting the government's adaptability to dynamic economic challenges.
According to Anadolu Agency, the focus of economic management was primarily on curbing inflation, a persistent issue for Turkey. Following the resignation of Central Bank Governor Hafize Gaye Erkan in February, Fatih Karahan took the helm, continuing an aggressive tightening policy. Interest rates peaked at 50% by mid-year, successfully bringing inflation down to a 17-month low of 47.09% by November. In a significant policy shift, the central bank reduced its key interest rate from 50% to 47.5% in December, signaling a cautious move to bolster economic growth as inflationary pressures diminished.
The international community responded positively to Turkey's economic policies. Global credit rating agencies upgraded Turkey's ratings throughout 2024. In July, Moody's elevated Turkey's long-term foreign- and domestic-currency issuer and foreign-currency senior unsecured ratings to 'B1' from 'B3', citing effective monetary measures and enhanced economic stability. Fitch Ratings followed in September with an upgrade to 'BB-' from 'B+', while S and P Global raised Turkey's long-term sovereign credit rating from 'B+' to 'BB-' in November, reflecting increased confidence in Turkey's economic management and structural reforms.
Turkey's international reserves reached a record $159.4 billion by December 6, and its five-year credit default swaps (CDS) fell below 250 basis points for the first time since February 2020, easing financing access and reducing costs, thereby attracting foreign investors. The BIST 100 stock index demonstrated renewed investor confidence, rising nearly 34% by year-end, driven by gains in banking and industrial sectors.
Despite these advancements, challenges persisted. The unemployment rate increased to 8.8% in October, influenced by high interest rates and economic adjustments. The government prioritized job creation, focusing on fostering a conducive business environment and attracting foreign direct investment.
Turkey's GDP growth decelerated over 2024, with year-on-year growth of 5.5% in the first quarter, 2.4% in the second quarter, and 2.1% in the third quarter. The economy contracted by 0.2% quarter-on-quarter in both Q2 and Q3, following 1.2% growth in Q1. On the fiscal front, the government announced a 30% minimum wage hike for 2025 to balance worker needs with the broader effort to control inflation.
As 2024 concludes, Turkey stands at a crossroads, with successes in inflation reduction and restored confidence providing a strong foundation. However, careful navigation will be essential in 2025 to maintain these gains while encouraging economic growth.