Reuters Growth and Inflation Analysis: What will the outlook be during the election period?

According to the analysis of Turkey by the British news agency Reuters, consumer inflation (CPI), which is expected to drop from 85 percent to 40 percent in the elections to be held in June next year, and the flat course of the Turkish lira without losing value, can support the government’s electoral propaganda.

However, with the slowdown in growth, how to maintain the level of employment will be one of the risky issues.

The general expectation regarding inflation is that the fall in annual inflation will continue in the first quarter of next year with the contribution of the base effect. In the Reuters comprehensive quarterly survey, the CPI expectation for the end of the first quarter of 2023 is 57 percent. The government forecasts inflation at levels of 20 percent by the end of 2023.

‘INFLATION COULD REACH 35 PERCENT IN MAY’

While two economic officials who provided information to Reuters said they forecast inflation of around 40 percent during the election period, four economists that Reuters asked for their calculations forecast May annual inflation in the range of 35-43 percent if there is no new depreciation in the electoral period. Turkish Lira.

The economic direction says that they have put an end to speculative movements in the currency market, that “stability” has been achieved and this trend will continue in the next period. In Reuters’ current analysis on the subject, he completed a system where the CBRT does not need its reserves every week to balance the forex market. In this context, CBRT reserves have entered a growing trend in the last 5 weeks without any external input.

The TL, which has lost 30 percent of its value against the dollar since the start of the year, has been on a steady course for more than two months.

A senior economics official told Reuters: “Starting in December, there will be a noticeable decline in inflation. In the electoral period, inflation will be around 40 percent. Unless there is a new shock, of course… This figure would be 37 percent, 43 percent separately, but this figure should be considered as 40 percent,” he said.

Another senior economic official asserted that inflation may remain below 40 percent come election time: “Inflation for May appears to be between 36 and 39 percent. These estimates include areas whose prices are determined by the public.

THE BASE EFFECT WILL BE ACTIVATED

The CPI reached a maximum of 85.51% in October. The index will fall supported by the base effect and global energy prices, where strong increases have been replaced by limited decreases, as inflation will not be affected by the TL depreciation for the first time in years.

On the other hand, the fact that inflation decreases annually means that the price increase will continue, but the rate of increase will decrease. How much this drop will change voters’ outlook on the economy is also a matter to watch.

Economists draw attention to the fact that decreases in the base effect will not have an effect that can be felt on the street, but there is always the possibility that the part of energy prices that is reflected in prices will decrease. transport.

HOW WILL THE GROWTH BE COMPLETED THIS YEAR?

The officials said it is now clear that growth will top out this year above 5 percent. As the end of the year neared, growth projections for this year came in at a very narrow band.

“Growth of between 5.2 and 5.4 percent is possible, with a minimum of 5 percent,” an economics official said. Economists’ expectations for all of 2022 are around 5 percent, while other officials said the growth forecast is 5.4 percent.

While the Turkish economy grew 3.9 percent in the third quarter led by domestic demand, growth was 6.2 percent in the first 9 months. Growth was 11.4% in 2021 and 1.9% in 2020.

‘HIGHEST GROWTH AND EMPLOYMENT CAN BE FORCED BEFORE ELECTIONS’

On the other hand, the fact that imports continue to increase despite the slowdown in exports in the global recession will be essential to maintain employment records this year, since growth will slow in this context.

The same economics official said: “In the last quarter of the year, there is likely to be lower growth compared to the third quarter. But the main problem looms for the first quarter of next year under current conditions. “Especially employment is a difficult situation before the elections,” he said.

Many economists expected that the economy’s domestic and foreign demand could start to slow in the second half after strong export performance and a good tourist season. This trend started in the third quarter and is expected to continue into the next period.

When analyzing the components of growth in the third quarter, the good performance of domestic consumption stood out, while the contribution of external demand to growth began to weaken. Economists expect this trend to continue in the next period.

According to TUIK data, the number of unemployed increased by 57,000 people in October compared to the previous month and rose to 3.5 million people. The unemployment rate, on the other hand, increased by 0.1 percentage points to 10.2 percent in the same period.