EXPECTATIONS IN THE ECONOMY IN 2024…

REMZİ AKÇİN 
UGM Chairman of the Board of Directors

Our foreign trade has followed a fluctuating trend since the beginning of 2020 and has been in a general downward trend since October 2022. We do not foresee that there will be a positive development in 2024 under current conditions. Conditions such as tight monetary policy, access to financing, and the necessity of increasing public revenues show that an increase in imports will be tried to be prevented. On the other hand, if we accept that the 2024 growth rate in the Eurozone will be 0.9 percent, it is understood that there will be no significant increase in exports.

Despite the challenges, it's important to note that certain sectors will remain resilient and continue to play a crucial role in our economy. Sectors such as energy, transportation, logistics, health, food, iron and steel, automotive, and creative and innovative sectors will not only maintain their prominence but also contribute significantly to our economic growth and development.

The world experienced the Covid-19 pandemic, which started in November 2019 and continued until May 2022. During the pandemic, people were confined to their homes. Production dropped, and there were difficulties delivering products. This situation negatively affected the world economy.

Just when we thought the pandemic was ending and we were returning to normal, Russia began to invade Ukraine in early February 2022, and the war continues. While wars commonly affect only the warring parties, The Ukraine-Russia war deeply affected the whole world, both by "causing polarization and sanctions imposed on Russia" and by "causing a food crisis that was felt seriously, especially in poor countries."

Moreover, we lost more than 53 thousand citizens in the significant earthquakes centered in Kahramanmaraş, which occurred consecutively on February 6, 2023. The earthquake shook eleven provinces and was described as the "disaster of the century." More than 107 thousand of our people were injured. The earthquake's cost to the country's economy is estimated at 110 billion dollars.

On the other hand, a human tragedy is taking place in Gaza. Attacks on commercial ships in the Red Sea, which have intensified in response to this drama, negatively affect the global supply chain.

In addition, we had general elections in May 2023 and local elections on March 31, 2024. Additionally, there are elections in 40 countries in 2024. We all feel the effects of the elections on the economy.

Academics and public authorities managing the economy frequently express the same opinion: Despite the fiscal expansion that Turkey has carried out so far, it will undergo a very strong fiscal tightening starting after the election and until the end of the year. The first five months of the year will continue under high inflation conditions. In the second half of the year, we will experience a decline in inflation. Investments will become more active as the decline in inflation accelerates.

Under these conditions, economists' predictions in one sentence for 2024, the first quarter of which we have completed; "2024 will be a year of transition and balancing." In the light of these statements, we can summarize our expectations for 2024 under the following headings:

GROWTH

Research shows that global growth will be 2.7 percent in 2024. The world has still not recovered from the devastating effects of the pandemic and wars.

According to the Economic Outlook Report of the Organization for Economic Co-operation and Development (OECD), the global growth rate depends heavily on the growth potential of Asian economies. The Chinese economy, which grew by 5.2 percent in 2023, is expected to grow by 4 percent in 2024.

In the Eurozone, economic growth, which was 0.6 percent in 2023, is expected to reach 0.9 percent in 2024, with a slight improvement.

The IMF expects the US economy to grow by 2.1 percent in 2024.

According to the Goldman Sachs 2024 report, the USA will grow 2.1 percent in 2024. While the developed economies of the G20 are expected to increase by 1 percent in 2024, the economies of developing countries are expected to grow by 3.7 percent.

The Turkish economy completed 2023 with 4.5 percent growth. Despite the monetary tightening steps, the growth realized in the last quarter of the year is likely due to domestic consumption.

OECD predicts that Turkey's growth rate in 2024 will be 2.9 percent. The IMF increased its growth forecast for the Turkish economy in 2024 from 3 to 3.1 percent.

During the pandemic and its aftermath, Turkey followed an economic policy focused on production and employment but ignored inflation and applied interest rates far below economic requirements. This policy ensured production was kept at a reasonable level, as seen in the graph. However, we also see that this needs to be revised. After the second quarter of 2024, a policy focused on reducing inflation will be followed, more stringent measures will be taken, and a decrease in production will be observed accordingly.

INFLATION

Due to the decrease in production during the pandemic period and the subsequent wars, there were price increases, especially in food, worldwide. While developed countries prioritized the fight against inflation and increased interest rates, the opposite process occurred in Turkey. As a natural result of this, we faced an uncontrollable inflation problem.

On the other hand, although the harsh intervention made in December 2021 against the continuous increase in exchange rates stopped the increase in real terms, it could not prevent the cost inflation resulting from the increase. As seen in the graph below, monthly inflation, which peaked on this date, continued continuously.

We all know that 2024 will be the year (or at least the beginning) of the fight against inflation. However, it is also a fact that the first five to six months of the year will continue under high inflation conditions. It is estimated that inflation will decline due to a strong base effect starting from the second half of the year. On the other hand, there may be an improvement in the investment climate as the decline in inflation accelerates in the second half of the year.

If normalization in the current monetary policy continues, we can close the year with an inflation level of 40 percent.

EMPLOYMENT

As mentioned above, during the pandemic and its aftermath, Turkey followed an economic policy that prioritized production and employment but kept inflation in the background. From an employment perspective, this has paid off, as can be seen in the chart below.

There is a general opinion that there is no need to fear "a decline in employment along with a downward trend in inflation in 2024". In other words, a similar outlook for labor markets 2023 is expected in 2024. The most important reason for this is that with the downward trend in inflation, predictability becomes apparent, and investments increase. In addition, activities aimed at healing the wounds of the earthquake created significant employment, especially in the construction sector. It is a fact that these constructions will continue unabated in 2024.

We expect the flexible working method that entered our business life during the pandemic period to become increasingly widespread.

SECTORS

Climate change and artificial intelligence will be among the sectors that will affect both the global and national economy in 2024.

Investments in green energy, sustainable agriculture and environmentally friendly technologies will accelerate in 2024. Countries need to achieve green transformation within the determined timetable. Products that do not use clean and renewable energy in their production will be gradually prevented from entering the markets.

Carbon tax will always be on our agenda in 2024. Considering that the European Union (EU) will "switch to border carbon implementation" in 2026, issues such as "shaping production planning accordingly and calculating carbon tax" will become increasingly important.

On the one hand, green energy and on the other hand, the rise in oil prices necessitates clean energy and energy transformation. Therefore, investments in renewable energy projects and green technologies will increase. It is possible that investments in wind energy, solar energy and biofuels, which come to mind when alternative energy is mentioned, will increase. Electric cars and batteries used in electric cars and areas for their disposal after their useful life will also be on the agenda.

On the other hand, artificial intelligence and the sectors it affects will continue to determine and direct both economic and social life. Artificial intelligence and biotechnology will be among the sectors that will attract investment. Energy, transportation, logistics, health, food, iron and steel, automotive sectors and creative and innovative sectors will continue to stand out.

FOREIGN TRADE

As can be seen in the chart below, it would not be wrong to say that our foreign trade, which has been fluctuating since the beginning of 2020, has been in a general downward trend since October 2022. The most important impact here is that the EU economy, which constitutes the majority of Turkey's exports, will contract and even go into recession. It is a fact that this situation negatively affects our exports. However, the downward trend continues not only in exports but also in imports. The reason for this is that our exports are dependent on imports. The most important indicator of this is that more than half of our exports are exports within the scope of inward processing regime.

The decrease in export revenues did not only affect imports for exports; The increase in energy prices and the increase in gold imports have also put the country in a difficult situation. For this reason alone, some measures had to be taken against gold imports.

We do not foresee that there will be a positive development in 2024 under current conditions. Moreover, conditions such as tight monetary policy, access to financing and the necessity of increasing public revenues show that an increase in imports will be tried to be prevented. On the other hand, as mentioned above, if we accept that the 2024 growth rate in the Eurozone will be 0.9 percent, it is understood that there will be no significant increase in exports.

All this informs us that the pressure on imports will increase throughout the year and that all instruments will be used to make imports more difficult.

CUSTOMS

Türkiye took its most concrete step in the EU membership process, which started in 1963, with the Customs Union in 1996. However, at this point, no progress has been made regarding membership. With the decision of the EU Council dated December 15, 2021, negotiations that were not ongoing were frozen.

Many problems and developments since the Customs Union Agreement was implemented in 1996 make it difficult to carry out the Customs Union in its current form. To solve the problem, Turkey has been trying to update the Customs Union since 2014 but has yet to achieve results. The expectation for 2024 is to make progress in updating.

Another expectation is the update on the new customs law. The EU implemented the Community Customs Code, which is based on the principle that all customs transactions will be carried out in a paperless environment in 2013 and thereafter. The draft Customs Law in accordance with this code was prepared, but it could not be included on the agenda of the Turkish Grand National Assembly.