The World Bank and the Organisation for Economic Co-operation and Development (OECD) have upgraded their growth forecast for Türkiye’s economy for 2023, citing domestic demand as the main driver and challenges over inflation and rebuilding after devastating earthquakes in early February.

World Bank’s Growth Forecast

The Turkish economy is projected to expand by 3.2% this year, the World Bank said in its latest Global Economic Prospects report. This is up from a 2.7% forecast issued in January but below a 5.6% growth rate in 2022.

The development lender sees the economy growing 4.3% next year, compared to its earlier forecast of 4%. It expects Türkiye to grow by 4.1% in 2025, it said Tuesday.

OECD’s Growth Forecast

The OECD expects the Turkish economy to grow 3.6% in 2023, up from its projection of 2.8% expansion in March, according to its latest Economic Outlook report, released on Wednesday.

In contrast to the World Bank, the Paris-based group lowered its 2024 forecast, now seeing the economy growing 3.7% versus a 3.8% projection in March.

Challenges Faced by Türkiye’s Economy

The World Bank cited the fallout from the catastrophic earthquakes that struck Türkiye’s south on Feb.6, killing over 50,000 people, leveling hundreds of thousands of buildings and causing massive infrastructural damage.

It also referred to the uncertainties over monetary policies and high inflation, which has moderated since the beginning of the year, lastly easing to an annual 39.6% in May, according to official data.

Resilience of Türkiye’s Economy

Despite the headwinds, the Turkish economy remained resilient in the first quarter as Türkiye remains a key contributor to the growth of Europe and Central Asia, the World Bank said.

The economy expanded 4% in the January-March period, growing strongly despite the impact of the February tremors.

Positive Momentum and Government Support

While domestic demand remains a key driver for the Turkish economy’s growth, the revised projections are partly a result of positive momentum from strong growth recorded in late 2022 and additional government support to households, the World Bank said.

Reconstruction efforts from the earthquakes are also expected to support investment, it added.

OECD’s Recommendations

The OECD said post-earthquake monetary and fiscal policies would continue to support the economy.

However, it said anchoring inflation expectations will be challenging. “Monetary policy should be tightened, and clear communication should be provided about future steps,” the group noted.

The report also suggested that the unemployment rate would remain close to 10%, and the relaxed financial conditions would keep inflation above 40% this year and in 2024.

OECD expects inflation to be 44.8% this year and 40.8% in 2024.