In recent years, the effect of the macroeconomic and structural reforms undertaken in the early 2000s, which contributed to the rapid socio-economic development of Turkey, began to weaken, which led to a slowdown in productivity growth, and economic growth became increasingly dependent on external financing and stimulating domestic demand.
Nevertheless, the Turkish economy was one of the few that managed to avoid a significant contraction during the period the COVID-19 pandemic in 2020. By the end of 2021, GDP grew by 11.4%, which is significantly higher than the global average for this period. Lifting of restrictions in 2021 contributed to a stronger than previously expected growth in domestic demand, and, as a result, economic recovery, primarily due to household spending. In the pre-pandemic years, the slowdown in the Turkish economy was increasingly cyclical. In 2022, the growth rate of real GDP slowed to 5.5%.
Slowing domestic and external demand, global geopolitical tensions and significant macroeconomic imbalances will have a further impact on the country's economy during 2023. In addition, ultra-high inflation, a growing current account deficit and a significant level of external debt will have an impact on the economy. The new economic targets announced by the government forecast a reduction in the current account deficit from about 4% of GDP in 2023 to 3.1% in 2024.
However, according to Bloomberg forecasts, there is no improvement in the current account in the long-term. With this in mind, the IMF predicts that economic growth will decline to about 4.0% in 2023.
According to an analysis by the Vienna Institute for International Economic Research, Turkey has huge economic growth potential. However, this requires achieving greater macroeconomic stability. It is assumed that changing the vector of monetary policy and maintaining it in the coming years will reduce high inflationary pressure and the rapid weakening of the Turkish lira against the US dollar and the euro. Moreover, it will be necessary to solve the problem of a high current account deficit, which has become more difficult to finance in recent years, which has made Turkey dependent on the changing moods of foreign investors and the aggressive monetary policy of the US Federal Reserve.
During 2018-2022, Turkey's GDP by PPP per capita had a positive trend. Starting in 2021, it grew at an accelerated pace, and in 2022 the index amounted to $39,314.0, exceeding the pre-pandemic level by 32.3%. According to IMF forecasts, by 2028 GDP in PPP per capita will reach 51,239.5 US dollars. The devaluation of the Turkish lira has led to a rapid increase in prices for imported goods. As a result, the inflation rate in Turkey increased to a record 72.3% by the end of 2022, compared with 19.6% a year earlier.
