The Turkish economy faced significant turbulence in 2023, mirroring the challenges of the preceding year. These ongoing difficulties stifled the potential for any substantial institutional progress. However, a shift in economic management prompted a partial revival of institutional momentum specifically within monetary policy. This edition of the bulletin will provide a concise evaluation of the Turkish economy in 2023, examining four key areas through the lens of available data.Economic Growth in an Inflationary EnvironmentIn 2023, despite global uncertainties and cautious investment patterns, the Turkish economy exhibited resilience, achieving an annual Gross Domestic Product (GDP) growth of 5.9%. This growth was underpinned by robust consumption levels and increased government spending. However, the economy grappled with substantial inflationary pressures stemming from factors such as currency devaluation, escalating energy expenses, and disruptions within the supply chain.As of November 2023, the Consumer Price Index (CPI) soared to 61.98% year-on-year, presenting a formidable challenge for the economy. Notably, the majority of economic institutions' initial inflation forecasts for the year fell short, signaling a capacity erosion within these institutions.Institutional Reforms and Monetary PolicyThe government's efforts towards instituting reforms aimed at stabilizing the economy, reinstating fiscal discipline, and fortifying regulatory frameworks held crucial significance in addressing structural deficiencies and fostering a more foreseeable economic landscape. Regrettably, the anticipated reforms either remained unimplemented or, if executed, proved largely ineffective. Amidst these challenges, the Central Bank of the Republic of Turkey (CBRT) assumed a pivotal role in tackling economic hurdles. The Bank's strategic monetary policy directives, aiming to navigate between curbing inflation and bolstering growth, exerted a substantial influence on the value of the Turkish lira. The exchange rate underwent significant fluctuations, influenced by investor sentiments and a range of domestic and international economic occurrences. Despite this, the Turkish economy showcased its most commendable institutional performance within the realm of monetary policy. However, given that rectifying past errors solely through monetary policy is impractical for an entire economic administration, the shift toward a more "rational" monetary policy has contributed only marginally to enhancing the broader institutional capacity framework.Foreign Trade, Balance of Payments and Employment DynamicsIn 2023, Turkey engaged in increased collaboration with international institutions and trading partners while actively pursuing foreign investments in trade and balance of payments aspects. Despite notable exports in sectors like automotive and textiles, the trade deficit expanded owing to mounting import expenses, particularly concerning energy and raw materials. This escalation raised apprehensions regarding external financing necessities and the state of foreign exchange reserves.The government directed efforts toward job creation and bolstering vulnerable sectors through policies like incentives, SME support, and training programs. There has been a marginal improvement in the unemployment rate, standing at 8.5% as of October 2023. However, the persistent decrease in labor force participation posed the primary challenge to the credibility of the unemployment statistics.Furthermore, job generation across sectors exhibited disparities, and informal employment continued to represent a substantial portion of the workforce. The elevated cost of living, coupled with inflationary pressures, detrimentally impacted living standards by diminishing real incomes and intensifying the burden on low- and middle-income households.In 2023, the Turkish economy encountered a blend of growth without substantial development alongside notable institutional hurdles. Institutional reforms, adaptations in monetary policy, and immediate strategic engagements abroad played pivotal roles in navigating this economic landscape. The government's endeavors aimed at economic stabilization, coupled with the central bank's responsibility in steering monetary policy, played critical roles in confronting challenges like inflation, currency stability, and trade disparities. However, the centralization of these plans, or their absence, unfortunately resulted in an inadequate institutional capacity to effectively manage the economy.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;"> 1https://rm.coe.int/grecorc4-2023-12-final-eng-4th-interim-compliance-report-turkiye-conf-/1680ada6ef&nbsp;2https://rm.coe.int/16806c9d29

The Freedom Observer

The government's endeavors aimed at economic stabilization, coupled with the central bank's responsibility in steering monetary policy, played critical roles in confronting challenges like inflation, currency stability, and trade disparities. However, the centralization of these plans, or their absence, unfortunately resulted in an inadequate institutional capacity to effectively manage the economy.

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