The goal of the economic administration in 2025 is to accelerate disinflation to a more perceptible level and speed up structural reforms, Treasury and Finance Minister Mehmet Şimşek said Wednesday.
Speaking at the event, organized by the Independent Industrialists and Businessmen’s Association (MÜSIAD) in Istanbul, Şimşek evaluated global economy trends, the path of disinflation and key aspects of the program the government has been implementing since mid-2023 to rein in elevated prices.
"Disinflation has started," Şimşek said, adding that the two main objectives in 2025 are "to accelerate disinflation to a more perceptible level and accelerate structural transformation."
Türkiye's annual inflation dropped to 44% in December from around 75% in May last year, according to official data released last week.
The minister reiterated that the main goal of the program is "sustainable high growth and more equitable income distribution."
Starting his speech, he provided key insights on the global outlook, both in the short and long term, underscoring that certain aspects of it such as more stable commodity prices and expected recovery in the EU growth, Türkiye's main trading partner, along with the country's strategic location work to its advantage in the short term.
He also noted that the fall in inflation globally, which is expected to continue, this year is "supportive" because it means more favorable, short-term financial conditions, thus being supportive of the program and economic activity in Türkiye.
He, however, warned of uncertainties related to the U.S. economic policies that come with the new administration after Jan. 20, noting that the new U.S. trade policies could "have a big impact on us," because China's export route could change.
In the long term, he suggested some issues need to be addressed, citing in particular protectionism and relatively high global debt, while also highlighting the aging population, climate change and the role of transformative technologies such as artificial intelligence.
Drawing attention to the fact that fragmentation in global trade is the new normal due to the geostrategic competition between the U.S. and China, Şimşek said that there have been many restrictions in the last two years.
"The base of global manufacturing industry production has shifted. China's share in the global manufacturing industry has increased from 8.6% to over 30%. During the same period, many countries, developed regions, the EU, the U.S. and Japan have experienced a serious decline in their shares in the global manufacturing industry added value."
Indicating that the shift here will create new trends, he emphasized: "Supply from friendly countries will continue to be an important trend. The global trade policy uncertainty index has reached serious levels, at its highest level in recent history. There is uncertainty here about what kind of steps will be taken after Jan. 20, and what kind of changes will be made to customs tariffs."
"Some countries will be affected a lot, some less, by the U.S.' trade policy uncertainties. We are expected to be affected relatively less because we do not have a trade surplus with the U.S., and we are already facing customs tariffs. Due to the change of route of Chinese exports, the U.S.' new trade policies may have a great impact on us in this area. If the new U.S. administration acts on what it said before the election, this may indirectly seriously affect us," he stated.
Moreover, he also warned that trade wars might gain speed, while he also pointed out that fluctuation in the dollar or changes in euro and dollar parity also play significant roles, citing impacts on exports as an example.
The minister also touched upon Türkiye's advantages, mentioning that 62% of Turkish exports go to 54 countries with which it has free trade agreements (FTAs), mainly the EU, through customs unions but also the other FTAs and its strong historic ties with neighboring geographies such as the Balkans, the Middle East and North Africa.
"Therefore, three-quarters of our exports are actually relatively more resistant to these trends," he said.
Şimşek noted that these developments will accelerate regional integration and everyone will focus on their immediate geography. "We are advantageous in that respect again. Because we are an important industrial and service base in our region," he added.
"In addition, Türkiye is a very important base in terms of logistics. So, let me say it again, there is fragmentation in global trade. There are serious uncertainties, but Türkiye's current structure includes resilience," he stressed.
Referring to Türkiye's economic program, Şimşek reiterated it is been in place for a year and a half and conveyed the belief that they have reduced the vulnerabilities in the Turkish economy while the macro-financial stability has been strengthened.
"Compared to where we started, the Turkish economy is less fragile and macro-financial stability is stronger," he said.
"Disinflation has started, the real economy has been affected but it is resilient so far. There is an increase in employment," he added.
"The current account deficit has fallen dramatically as a ratio to national income, which is good news. It means we will borrow less from abroad. Türkiye's gross external financing needs are decreasing. Our reserves have increased, and net reserves have increased by more than $100 billion," the minister explained.
Addressing the same event, MÜSIAD head Mahmut Asmalı said that 2024 was a difficult year for the real sector but emphasized the fight against inflation.
"The difficulty in accessing financing and the slowdown in domestic demand negatively affected investments, and turnover figures declined in real terms. Despite the difficult conditions, the moderate increase in exports in 2024 and the preservation of employment growth once again demonstrated the resilience of the Turkish economy," Asmalı said.
Emphasizing that Türkiye managed to reduce the risk premium and current account deficit in 2024 while strengthening the central bank reserves, he noted these gains were also important in achieving success in the fight against inflation.
He suggested that inflation would continue to be on the 2025 agenda and said that although the decline in monthly inflation was not yet stable, the drop in annual inflation from 75% to 44% in 2024 showed a more promising development for this year.
Moreover, he also stated that Türkiye, as the most important actor in the post-war rehabilitation process of Syria, is in an indispensable position and this situation would be further strengthened in 2025.
Elaborating on other results of the program, Şimşek, on the other hand, reiterated the significant drop in CDS and suggested that confidence in the Turkish lira has meanwhile increased.
He also informed that close to 60% of total deposits is now in Turkish liras.
"Our goal is to reduce inflation to around 20% this year, to around 10% next year and then to single digits. There is great rigidity in inflation in the service sector, and it will take time to break this rigidity," he concluded.
