The OECD has sharply raised its inflation forecast for Turkey by the end of this year, predicting it will reach 26.7%, an increase of 5.9% from its previous estimates. Conversely, it has lowered its economic growth forecast to 3.3%, down from 3.4%, due to the impacts of the Iran war and tensions in the Middle East.
These forecasts follow a report published by the organization on Thursday, which indicated that rising energy prices and supply chain disruptions resulting from regional tensions would lead to human losses and economic costs for affected countries, in addition to testing the resilience of the global economy.
Details of the Event
The OECD expects inflation in Turkey to continue rising, having adjusted its forecast for 2027 from 11.7% to 16.9%. The report noted that the near-total halt of shipments through the Strait of Hormuz has led to a sharp increase in prices, impacting global supplies of other essential goods.
Reports have also shown that financial markets have experienced notable volatility, particularly in some Asian economies, complicating financial conditions further. The organization emphasized that the scope and duration of the tensions, characterized by "extreme uncertainty," increase economic risks.
Background & Context
The Turkish Central Bank has revised its previous inflation forecasts, raising the inflation expectation range for the end of the year from 13% to 19% to between 15% and 21%. The estimation range for the end of 2027 has also been set between 6% and 12%.
In this context, the Deputy Governor of the Turkish Central Bank, Osman Judet Akcay, confirmed that the bank is undergoing a critical phase in combating inflation, noting that the monetary policy in place has contributed to reducing inflation by 12% over two years and ten months.
Impact & Consequences
The OECD anticipates that the continued rise in energy prices will significantly increase operational costs, leading to higher consumer inflation. The rise in energy prices and supply chain disruptions coincide with a sensitive period for major economies, such as the UK, the US, Turkey, Brazil, and Mexico, where inflation exceeds the targeted rate.
Under these circumstances, Turkey must take effective measures to address these challenges, as the ongoing tensions in the Middle East could exacerbate economic conditions.
Regional Significance
The tensions in the Middle East, including the conflict with Iran, are major factors affecting the Turkish economy, which directly impacts neighboring countries. The rise in energy prices could affect oil-importing Arab nations, increasing the economic challenges they face.
In conclusion, Arab countries must closely monitor economic developments in Turkey, as any changes in economic policies or regional tensions could affect economic stability in the region.