Minister Şimşek: Inflation responds to the program we are implementing

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Treasury and Finance Minister Mehmet Şimşek stated that they expect inflation to fall to single digits by the end of 2026 and that inflation responds to the implemented program.

Minister Şimşek gave a detailed presentation on Turkey’s economic outlook at the event held at the Brookings Institution.

Explaining the progress made in the Turkish economy, Şimşek said: “We expect inflation to fall to single digits by the end of 2026 and inflation responds to the program we implemented.”

Şimşek stressed that inflation will decline beyond the base effect, saying: “The lagging effect of monetary policy has started to appear. The negative fiscal impulse and more supportive income policy will accelerate the process of reducing inflation. Companies’ pricing behavior has started to improve.”

Minister Şimşek said: “Turkey needs price stability to maintain strong growth and there is no contradiction between growth and inflation.”

Referring to the narrowing of the current account deficit, Şimşek said: “We are making the improvement in the current account balance permanent with the increase in oil and natural gas production, energy conversion and active industrial policies. In this way, we will contribute to the accumulation of reserves and the reduction of the external debt to national income ratio.”

Şimşek stressed that the main driver of the increase in reserves is the decline in dollarization, and emphasized that the increase in external debt rollover rates and portfolio flows to the banking sector and the real sector also contribute to the accumulation of reserves, and that there has been an increase in reserves and a decrease of more than $100 billion in exchange rate-protected deposit accounts since August 2023.

Şimşek said: “We have a program aimed at increasing productivity. Turkey has a fragmentation-resistant structure in trade in addition to the customs union. We have free trade agreements with 27 countries and 60 percent of our total exports are manufactured in the countries with which we have free trade agreements.”

Explaining why Turkey should be invested

Referring to Turkey’s advantages in terms of investment, Şimşek noted that the country has a large economy with a population of nearly 90 million and a per capita income of $15,000.

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Noting that the country’s growth performance is much higher than its peers among developing economies, Şimşek said: “We are not only a large economy, but we are also growing rapidly.”

Şimşek stressed that the country has a strong and qualified labor market, and stressed that more than a million qualified workers graduate from universities and vocational schools every year.

Referring to the country’s strong production culture, Şimşek said: “So why are we not as rich as some advanced economies? Because we are still unable to move up the value-added chain. This is a problem we are dealing with. We need to work on accelerating structural reforms to produce products with medium to high and high value-added.”

In response to questions after his presentation, Şimşek, in response to a question regarding the terrorist attack on the Turkish Aerospace Industries (TAI) headquarters in Kahramankazan, said that it was not a “coincidence” that the Ankara attack came immediately after Devlet Bahçeli’s remarks and said: “This is a terrorist attack by the PKK and it shows that it is a terrorist organization and that some circles do not want unity and peace.”

In response to a question about Turkey’s desire to join BRICS, Şimşek stated that BRICS is a dialogue platform in its current form and is not equivalent to a more structured platform such as the European Union.

Şimşek stated that Turkey has proven to be a source of strength for the EU and not a burden, and said: “If they really want deeper integration, they need Turkey but their own policies prevent that.”

Noting that Turkey’s rapprochement with the EU would be beneficial to both parties, Şimşek said that such depth and strategic perspective are lacking in European political circles.

Asked how the tariffs that Republican presidential candidate Donald Trump intends to impose in the United States would affect Turkey, Minister Şimşek stated that it would not be appropriate to comment on the candidates.

Pointing out that according to the statements made, the United States is expected to have a larger budget deficit due to the tax cuts, Simsek pointed out that a larger deficit would mean increased debt, Simsek stated that this would mean higher long-term interest rates and a strong dollar and that this situation would not serve developing markets and therefore Turkey.

Noting that Turkey could also be affected by potential trade differences, Şimşek wondered whether this would bring Turkey and the European Union closer or lead to an update of the Customs Union Agreement.