Turkish economy saw bold monetary shifts, taming inflation to a 17-month low and earning global credit upgrades despite rising unemployment
Türkiye's economy in 2024 experienced one of its most transformative years in recent memory, marked by critical policy adjustments aimed at tackling inflation, stabilizing markets and preparing for sustainable growth.
The year began with the continuation of strict monetary policies but ended with a significant shift in strategy, highlighting the government's adaptive approach to evolving economic challenges.
The main focus of the economic management this year was taming inflation, which had plagued Türkiye for years.
Following the resignation of Governor Hafize Gaye Erkan in February, Fatih Karahan took over as head of the Central Bank of Türkiye as the bank maintained an aggressive tightening policy, raising interest rates to a peak of 50% by mid-year.
This policy succeeded in reducing inflation to a 17-month low of 47.09% by November, marking a turning point in the country's battle against soaring prices.
But the most notable development came in late December, when the central bank shifted course by cutting its key interest rate for the first time in nearly two years.
The decision to trim the policy rate from 50% to 47.5% signaled a cautious move to support economic growth as inflationary pressures eased.
The bank emphasized that it remained committed to maintaining price stability and would monitor inflation closely before making further adjustments.
The international community took note. Global credit rating agencies upgraded Türkiye's rating significantly throughout 2024.
In July, Moody's raised Türkiye's long-term foreign- and domestic-currency issuer and foreign-currency senior unsecured ratings to ‘B1' from ‘B3' with a positive outlook, citing effective monetary policies and improved economic stability.
Then in September, Fitch Ratings upgraded Türkiye's long-term foreign currency issuer default rating to ‘BB-‘ from ‘B+' with a stable outlook, reflecting improved external buffers, reduced contingent foreign exchange liabilities, the expectation of lower inflation and lower current account deficits.
The most notable upgrade came in November when S&P Global raised Türkiye's long-term sovereign credit rating from ‘B+' to ‘BB-.'
This reflected a growing confidence in Türkiye's economic management and its commitment to addressing structural challenges.
In addition to these rating upgrades, Türkiye saw a significant improvement in its international reserves which hit a record level of $159.4 billion as of Dec. 6.
Türkiye's five-year credit default swaps (CDS) dipped below 250 basis points on Dec. 6 for the first time since February 2020, leading to easier access to financing with decreased costs, satisfying foreign investors.
The performance of Türkiye's benchmark BIST 100 stock index also reflected renewed investor sentiment. Throughout 2024, the index saw a robust recovery, rising nearly 34% by year-end, led by gains in the banking and industrial sectors.
Increased foreign investment flowed into Turkish equities as international investors responded positively to the central bank's policies and the government's commitment to structural reforms.
Despite these positive developments, the country faced ongoing challenges. The unemployment rate rose to 8.8% in October, reflecting the economic adjustments and the impact of high interest rates on job creation.
The government continued to prioritize job creation as part of its broader economic agenda, focusing on fostering an environment conducive to business growth and attracting foreign direct investment.
GDP growth in Türkiye slowed during the course of 2024. The economy grew by 5.5% year-on-year in the first quarter, 2.4% in the second quarter and 2.1% in the third quarter.
The Turkish economy contracted by 0.2% quarter-on-quarter in both the second and third quarters of 2024, reversing 1.2% growth in the first quarter.
On the fiscal front, the government took measures to protect households from the lingering effects of high prices. A 30% hike in the minimum wage for 2025 was announced, aiming to balance the needs of workers with the broader economic effort to keep inflation under control.
As 2024 comes to a close, Türkiye stands at a crossroads. The year's successes in curbing inflation and restoring confidence provide a solid foundation, but careful navigation will be required in 2025 to sustain these gains while fostering economic growth.
