The inflationary trends and the measures taken by central banks to address this situation dominated the global economic agenda in 2023.

Global Fight Against Inflation

The inflationary trends and the measures taken by central banks to address this situation dominated the global economic agenda in 2023. Over the past year, when geopolitical issues were among the most important agenda items, supply chain disruptions led a shortage in meeting demand, resulting in increased energy and commodity prices.

The past year witnessed central banks implementing interest rate increases as part of their efforts to tighten monetary policies, accompanied by weak growth rate projections and potential recession concerns, and ongoing wars and energy crises have emerged as critical topics on the economic agenda.

While a partial easing in monetary policies is projected as of the latter half of 2024, new global trade routes are anticipated to emerge.

The fight against inflation was the primary focus for the US economy in 2023.

While the Fed has continued its efforts to sustain economic activity, it has also implemented various tightening measures to fight inflation. The decisions made led to the Fed raising interest rates to their highest levels over the past 22 years.

The value of the dollar index has decreased by over 2% in the past year, following a 15% increase in the two years prior as a result of interest rate hikes. The OECD report forecasted a 2.4% growth rate for the US economy in 2023 and a 1.5% growth rate in 2024.

The U.S. economy spent 2023 in pursuit of solutions to pressing issues, including the debt ceiling challenge and bankruptcies of banks.

Presidential elections will be held in the United States in 2024, which will be closely monitored by the global community. The interest rate decisions to be taken by the Fed in 2024 will be monitored in accordance with the data received. It is anticipated that interest rates will remain constant, particularly during the first half of the year, and that they will be reduced in the second half.

For the European economy, the year 2023 has been characterized by endeavors to address inflation as well as the energy crisis.

The European Central Bank (ECB) appears to be resolute in its commitment to fighting inflation as we enter 2024. In order to bring down inflation to the target rate of 2%, the ECB increased interest rates as part of this endeavor. The Bank emphasized that it would continue to implement its strict policy until it achieves the target in the new year.

Supply and energy issues brought about by the adverse impacts of the ongoing Russia-Ukraine War have remained the primary impediment to reducing high levels of prices. Besides, the challenges faced in the banking sector in the United States last year also spread to Europe.

The European economy’s growth rate is anticipated to be 0.6% in 2023 and 0.9% in 2024, according to the OECD’s report.

Developing economies experience a greater impact from global developments.

The Chinese economy, which experienced a recovery in the post-epidemic period and implemented interest rate cuts in 2023 to stimulate economic activity, is projected to achieve growth rates of 5.2% in 2023, 4.7% in 2024, and 4.2% in 2025. Meanwhile, the service sector in China maintained its growth momentum towards the end of the year.

Whereas no easing in policy implementation is expected in the first half of 2024, it is emphasized that time is needed to observe the outcomes of the measures taken and that the ultimate goal is to bring inflation down to single digits in the long run.

Turkey has been engaged in a busy agenda throughout 2023.

Intensive efforts were made throughout the year to address the economic and social repercussions of the Kahramanmaraş-centered earthquakes that struck our country on 6 February 2023.

Moreover, the change in economic management led to the adoption of a new policy to fight inflation, and while measures were taken towards tightening, messages of determination were conveyed in this regard. During this process, while interest rates were raised, decisions were made to decrease overall demand by implementing measures on the loan side.

Whereas no easing in policy implementation is expected in the first half of 2024, it is emphasized that time is needed to observe the outcomes of the measures taken and that the ultimate goal is to bring inflation down to single digits in the long run. Considering all these developments, it can be assessed that interest rates will peak at the end of 2023, that, based on the available data, significant increases are not anticipated in the future, and that there may be decisions made to reduce interest rates towards the end of the upcoming year.

While steps are being taken within the scope of the Medium Term Program, the Turkish economy is projected to achieve growth rates of 4.4% in 2023, 4% in 2024, and 4.5% in 2025.

As 2023 ends with an inflation rate of 64.77%, the CBRT’s projection for the end of 2024 is a more optimistic 36%, followed by a further decrease to 14% by the end of 2025. It is projected that the primary focus of economic management in the upcoming year will be addressing inflation and ensuring financial stability.