Vice President Cevdet Yılmaz on Thursday pitched Türkiye’s economic strategy to foreign investors, emphasizing the country’s commitment to maintain the downward trend in inflation and ensure balanced growth.
“A balanced growth composition, reduced current account deficit, increased confidence, improved expectations and accelerated foreign capital inflows are significantly contributing to the decline in inflation,” Yılmaz told an event at the London Stock Exchange.
Annual inflation, which exceeded 75% last May, has eased to as low as just over 40% in January, according to official data.
“The primary driver of inflation remains the services sector. Therefore, our program will focus more extensively on this area,” Yılmaz told the “2025 Outlook on Private Capital in Türkiye and Environs” conference, organized by Globalturk Capital.
The government has been pursuing a three-year economic road map, unveiled last September, which Yılmaz said centers around gradually reducing inflation to single digits, enhancing potential economic growth in alignment with the disinflation process, promoting production-based investments, increasing employment, driving exports through structural reforms and ensuring equitable income distribution to improve overall social welfare.
Yılmaz underscored the strong coordination among monetary, fiscal and income policies as pivotal to achieving these goals.
After a shift to more conventional policymaking as of the second half of last year, Türkiye’s central bank raised its benchmark policy rate by 4,150 basis points to cool inflation, bringing the one-week repo rate to 50% in March 2024.
After cuts of 250 basis points in both December and January, the rate is now 45% and is expected to fall to 30% by the end of the year.
“We maintain a well-coordinated team effort in preparing and monitoring policy documents. Policies are developed and effectively tracked through high-level mechanisms such as the Economic Coordination Council,” said Yılmaz.
Recovery in domestic demand
On global economic challenges, the vice president mentioned the growing trend of protectionist policies, geopolitical tensions and uncertainties in world economic policies, which he said create downward risks for growth and upward pressures on inflation.
Despite these challenges, Türkiye has demonstrated robust economic performance, according to Yılmaz.
He was speaking before data on Friday showed Türkiye’s economy grew 3% year-over-year in the fourth quarter of 2024, bringing full-year growth to 3.2%, exceeding forecasts despite the weight of high interest rates.
The government, which had initially projected 3.5% growth for 2024, had trimmed its expectations to reflect ongoing adjustments in domestic demand and efforts to slow down inflation.
Elaborating on the data on Friday, Yılmaz said while the policies implemented to combat inflation continue to contribute to the balancing process, “a healthy recovery in domestic demand is being observed in a manner that strengthens macroeconomic stability.”
“Fourth quarter data reveals the resilient structure of our economy and our determination to follow a sustainable growth path, in line with our balanced growth model,” he wrote on social media platform X.
Focus on services sector
On inflation, Yılmaz on Thursday highlighted a 33-percentage-point drop over the past eight months, attributing it to the balanced growth composition, reduced current account deficit, increased confidence, improved expectations and accelerated foreign capital inflows.
He stressed the government plans to focus more on the services sector, as it remains a primary contributor to inflation.
Despite external challenges, Yılmaz said Türkiye’s exports reached a record $262 billion (TL 9.57 trillion) in 2024, with total goods and services exports surpassing $377 billion.
He also noted significant improvements in the current account deficit, which narrowed by $30 billion year-over-year to $10 billion in 2024. The ratio of the current account deficit to national income, which was recorded at 3.5% in 2023, fell below 1% in 2024.
Yılmaz said the budget deficit remained at reasonable levels despite the increased spending related to rebuilding after earthquakes that struck Türkiye’s southeastern region in February 2023. He said the budget gap is estimated to be 3.1% of gross domestic product (GDP) this year, with a 1.7 percentage point improvement compared to 2024.
“We expect it to fall below 3% next year,” he noted, saying that expenses related to the earthquake will “largely disappear” by the end of 2025.
“This year, we anticipate a gradual increase in exports by strengthening our export-oriented growth strategy. We expect the current account deficit to be 2% of GDP in 2025. During this period, increased export diversification and declining energy costs will contribute to improving the current account deficit,” said Yılmaz.
He pointed out that the public debt-to-GDP ratio decreased to 25.6% in the third quarter of 2024.
Lower inflation, risk premiums
Yılmaz emphasized that the policies fostering political and economic stability have significantly enhanced investor confidence since the second half of 2023.
“Credit risk premiums and CDS rates have substantially decreased, international capital inflows have accelerated, reserves have strengthened, exchange rate volatility has declined, and financing conditions have improved,” he noted.
The Turkish central bank’s total reserves increased from approximately $98 billion in May 2023 to $170 billion as of this February, according to the vice president.
Looking ahead, Yılmaz highlighted expectations of continued reductions in the five-year CDS risk premium, stressing that the government projects a 4% economic growth and further declines in inflation this year.
“The central bank estimates annual inflation to drop to 24% by the end of 2025. Balancing the economy and maintaining consistent monetary policies will be critical in reducing inflation to single digits by the end of the MTP period,” he said.
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