Interest rates will come down further and the global economy will grow at around 3% in 2025. Turkey will cut rates by January and continue with a 250 basis point rate cut cycle, but rates will remain elevated and an economic revival is unlikely until at least the second half of 2025, according to Rota Portföy chief economist Özlem Bayraktar Gökşen.

Although not to a point of price stability in developed markets, the reduction in global inflation has been obvious.

The US economy has achieved its soft landing but inflation remains “a little bit sticky”, Gökşen noted at Kallanish Flat Steel 2024 in Istanbul on Thursday. The US could cut rates by 25bps in November and again in December – its reason for doing this is not because it needs to, but rather because the differential between nominal and real interest rates need to be narrowed.

In the eurozone, “the European Central Bank [ECB] needs to give some shock to the economy to see some revival – the motivation is different,” she continued. The ECB’s rate cutting cycle will therefore be longer than the US Federal Reserve’s. There is nevertheless more room for manoeuvre now since inflation has come down significantly.

China’s economic growth outlook is uncertain. “They have the tools to revive the economy. The main problem is we don’t know the timing of the Chinese government to come through with these measures,” she noted. The market has not been satisfied with the fiscal policy response so far, and there are likely to soon be further measures. It is unlikely China will pose a systematic financial risk to the global economy in 2025, she added.

Turkish economic expectations remain encouraging for 2025 thanks to the country’s return last year to orthodox policy. Gökşen expects Turkish inflation at 43-44% this year and 24-25% in 2025, above the central bank’s 2025 target of 14%. “This still means it’s coming down but we have a long way to go,” she observed.

“The main issue on rates is expectations,” she continued. Although the current rate has remained unchanged for months, inflation expectations have not come down. The central bank lost its credibility with its unorthodox policy in previous years. “Every day was a surprise for us,” Gökşen opined.

The bank will continue a 250bps rate cut cycle but rates will remain high as a “guarding effect” for the lira. Higher rates will however result in dampened economic activity. Growth could pick up in H2 amid lower interest rates and increased confidence over the credibility of measures taken so far. Turkish GDP should grow 2.6% in 2024, with growth slowing to 2% next year.

Despite the high rates, Turkey has seen loan growth in the last two months, which it needs to avoid given inflation. Domestic consumption is struggling to come down in the last three years due to Turkish consumer behaviour geared towards consumption, Gökşen concluded.