Türkiye anticipates relative economic recovery as of H2 2025
Türkiye will likely see a relative economic recovery starting as of the second half of next year, according to the nation’s top economy official, who also said administered prices would be aligned with inflation targets to the extent that the budget allows.
Since last year, the government has been implementing a “rule-based and well-designed” program, aiming for “sustainable high growth and a more equitable income distribution,” Treasury and Finance Minister Mehmet Şimşek told Parliament’s Planning and Budget Commission on Friday.
Şimşek identified “price stability, budget discipline, sustainable current account deficit, and structural transformation” as the three-year medium-term program’s core components.
“We will do whatever it takes to ensure price stability,” the minister stated.
Şimşek also pointed out significant progress in reducing external vulnerabilities and strengthening macro-financial stability. “During the program period, we aim to keep the current account deficit below 2% of GDP to accumulate additional reserves and strengthen external debt sustainability,” he said.
“Our reserve adequacy has reached the threshold level according to international recognition. Our total reserves increased by $59 billion, and net reserves, excluding swaps, rose by $106 billion compared to May 2023. Approximately 75% of this increase is due to domestic portfolio preferences,” he remarked.
He outlined plans to reduce the domestic debt rollover ratio from 139.5% in 2023 to 132% this year, with a further decline to 119% in 2025.
Inertia in services
“High inflation is the most critical macroeconomic challenge we face,” Şimşek stated, adding that achieving price stability will require a long-term commitment and efforts.
The progress in the disinflation process has seen annual inflation dropping by 26.9 percentage points over the last five months to 48.6% in October.
Still, Şimşek acknowledged persistent inertia, particularly in the services sector.
“While inflation in core goods, which are highly sensitive to monetary policy, has declined more noticeably, inertia in services remains high, as seen globally,” he said.
A week ago, the Central Bank of the Republic of Türkiye (CBRT) raised its year-end inflation forecasts for this year and next to 44% and 21%, respectively. CBRT Governor Fatih Karahan vowed to keep policy tight to propel the disinflation process and hit targets.
The bank’s previous inflation report three months ago forecast year-end inflation of 38% in 2024 and 14% next year. The government anticipates end-2024 and end-2025 inflation of 41.5% and 17.5%, respectively.
To curb inflation, the central bank has hiked rates by 4,150 basis points between June 2023 and March 2024, to 50%. Last week, Karahan said the new inflation forecasts were based on maintaining tight policy, adding the bank would do “whatever is necessary” to wrestle inflation down.
Şimşek outlined key factors that he says are expected to influence disinflation in the coming period.
“First, the delayed impact of monetary policy on inflation will become clearer over time. Second, the reduction in the budget deficit-to-GDP ratio in 2025 will create a negative fiscal impact. Third, we will set administered prices in line with inflation targets to the extent that the budget allows,” he said.
Şimşek projected a modest GDP growth of 3.5% for 2024, down from 5.1% the previous year, as the government prioritizes economic balance over rapid expansion. However, he expressed optimism about the year ahead.
“Our growth projections are in line with our expectations … With declining inflation and favorable global conditions, we anticipate a relative recovery in economic activity starting from the second half of next year,” he said.
Structural reforms, green transition
Making the gains of Ankara’s 18-month-old economic turnaround program permanent is only possible through structural reforms, said Şimşek.
“Developing R&D and innovation capacity, ensuring green, digital, and technological transformation, strengthening human capital, making the labor market more efficient, improving the business and investment environment, and reducing informality are the program’s main axes,” he stated.
The disinflation is being supported not only with demand-side policies but also with supply-side measures in areas such as food, housing, and energy, Şimşek added.
“In public finance, we have presented our draft Public Procurement Reform and State-Owned Enterprises governance reform to our parliamentary group. By increasing efficiency and competitiveness through structural reforms, we will enhance our growth potential,” he said.
Şimşek summarized the goal of income policies as further strengthening tax justice and increasing the share of direct taxes, reiterating the government’s determination to combat the informal economy.
For 2025, Türkiye plans a total budget expenditure of TL 14.73 trillion, with the Treasury accounting for TL 6.6 trillion. The amount set aside for interest expenses is TL 1.95 trillion.
Excluding interest payments, 98.4% of the Treasury’s budget – approximately TL 4.57 trillion – will finance services of other public institutions. Notable allocations include TL 1.3 trillion each for Social Security Institution (SGK) and local administrations.
