Türkiye's economy eyes growth amid shifting policies, challenges
Finance Minister Mehmet Şimşek speaks during the 66th General Assembly of the Banks Association of Türkiye (TBB) in Istanbul, Türkiye, Aug. 17, 2023. (Reuters Photo)

Finance Minister Şimşek hails steps undertaken following the May elections and shifts in economic policy, stating that Ankara expects the nation's economy to grow by around 4.5% in 2023 despite the dire global financial winds



Türkiye’s finance minister on Thursday hailed the steps of the country's new economic team following its appointment after the parliamentary and presidential elections in May, stating that despite dire global financial conditions they foresee the country’s economy growing in 2023.

"The steps we have taken have begun to positively impact the expectations regarding the Turkish economy," Treasury and Finance Minister Mehmet Şimşek said during the general assembly of the Banks Association of Türkiye (TBB).

"In 2023, we are forecasting a growth rate of around 4.5% despite all global financial problems," he said.

"As I said before, our main principles are transparency, consistency, predictability and complying with international norms," he said. The Turkish government is shaping policies within these main principles, he said.

"We will move forward in a system that embraces the principles of freedom of enterprise, free exchange, floating exchange rate, and an open and rule-based economy," Şimşek maintained.

Since the May elections, President Recep Tayyip Erdoğan's government orchestrated a U-turn away from policies based on interest rate cuts that had been accompanied by a steep fall in the Turkish lira and soaring inflation.

The naming of Şimşek as economy minister and Hafize Gaye Erken as central bank governor signaled a return to more orthodox policies, centered around monetary stimulus and interest rate hikes to combat stubborn inflation, stabilize the volatility in the Turkish lira and rebuild foreign exchange reserves – which according to Şimşek began to yield positive results.

"The reduced political uncertainty following the elections and the steps we have taken in monetary and fiscal policy have started to have a positive impact on expectations for the Turkish economy. The country's risk premium has decreased from 700 to around 400 basis points," Şimşek said during the meeting with bankers.

Elaborating further, Şimşek said international credit rating agencies have started to reveal a more optimistic outlook for the Turkish economy, adding one of the agencies raised the Turkish banking system's outlook to stable from negative.

Earlier this week, international credit rating agency Moody's changed its outlook for each of the 17 Turkish banks it has given credit ratings as "stable."

He also vowed to further strengthen financial stability in the upcoming period.

"Simplification and tightening policies will continue," he added. Under Erkan, the central bank has reversed course and tightened policy in the last two months. Since Erkan’s arrival in early June, the bank raised its one-week repo rate by 9 percentage points to 17.5%.

'World about to end monetary tightening'

However, the world is likely to end the monetary tightening cycle, which is positive for the global economy, Şimşek said stating that the possibility of monetary easing from the second half of 2024 has increased.

Stating that numerous central banks increased interest rates dozens of times recently, he said financial conditions will be more supportive in the second half of the next year.

The global economy is expected to grow by 40% during the coming five years, Şimşek added, noting this rate is below the global potential.

Meanwhile, Türkiye's growth performance is robust, he said.

"We hope that as of the second half of 2024, we will face a more supportive environment in global financial conditions. When we look at our country, our growth performance continues to be quite strong. Our country grew by 5.4% in real terms on average in the 2003-2022 period. Despite these troubled global financial conditions, we foresee a growth of around 4.5%," Şimşek noted.

"Funds started to flow into our capital markets, all these developments have eased access to foreign financing opportunities and reduced financing costs," he added.

Türkiye in July signed multiple bilateral trade agreements, including the ones with the United Arab Emirates (UAE) worth $50.7 billion during President Erdoğan's visit to the Gulf country, the Presidency's Directorate of Communications said.

Touching on the Turkish banking sector, Şimşek said the sector has proved its resilience during the global financial crisis and the pandemic.

The Turkish banking sector is an important element of the country's economy, he said.

"Our banking sector has always had very strong support, especially in terms of investment, employment, production and exports. We hope that they will continue to grow in line with our policies, in a way that will reduce our country's current account deficit and control inflation in a more selective way in the coming period."

The country plans to unveil a structural reform agenda in September, along with its medium-term economic program (MTP), officials, including Vice President Cevdet Yılmaz, signaled recently.