Turkey’s GDP growth bounced back 11% in 2021, but is expected to slow sharply in 2022 on high inflation and geopolitics. Turkey’s inflation surged to a 20-year high of 54% in February, expected to remain elevated in 2022.
Turkey lowered value added tax on food to 1% from 8% in February to fight inflation. Market expectations are that inflation will increase further in coming months due to risks over commodity and agriculture prices, peak in May and remain elevated at 38% by end-2022. Meanwhile, the Central Bank of Turkey expects inflation to ease starting 3Q22 on the back of (i) measures taken for sustainable price and financial stability, and (ii) the high base effect in 2H21.
Lira traded around 14.65 per dollar, current geopolitics threatened Turkey’s macroeconomic stability. Emerging market currencies depreciated slightly against the USD but the lira diverged negatively, Turkey’s FX reserves reversed its uptrend.
