Vice President Cevdet Yılmaz reassured on Wednesday that Turkey is not facing the risk of a “hard landing,” even as the country anticipates a slight slowdown in growth due to ongoing disinflationary measures. Speaking to the business daily EKONOMI, Yılmaz emphasized that while consumption is expected to moderate as part of efforts to control inflation, Turkey’s economic trajectory remains stable.
Yılmaz highlighted the government’s dual focus on curbing inflation while maintaining economic growth. He stated that although there might be some reduction in the growth rate, Turkey will not experience negative growth. “There may be partial declines in the growth rate, but we will certainly not move into negative territory,” Yılmaz said, underscoring the government’s confidence in the economic outlook.
Türkiye has been battling high inflation, a problem aggravated by global supply chain disruptions and fluctuating energy prices. The Central Bank of the Republic of Turkey (CBRT) has responded with aggressive monetary tightening, raising its benchmark policy rate by 4,150 basis points since June of the previous year. The rate has remained unchanged at 50% since March to allow the effects of the tightening to manifest.
Yılmaz pointed out that the reduction in inflation has been partly driven by the “base effect,” a statistical phenomenon where inflation appears lower when compared to previous high levels. However, he cautioned that the base effect alone is insufficient to control inflation, stressing the importance of the government’s broader economic strategies aimed at reducing demand.
The vice president also addressed concerns about Turkey’s economic growth potentially stalling. He stated that while consumption has moderated, this aligns with the government’s disinflationary growth strategy, which seeks to stimulate production, investment, and exports. “This approach aligns with a disinflationary growth strategy,” Yılmaz explained, noting that the current policies are designed to reduce demand without harming growth.
Yılmaz also touched on the ongoing debate about Turkey potentially being trapped in a “middle-income trap,” where economic growth stagnates after reaching middle-income status. He argued that Turkey’s path to escaping this trap lies not in low wages, but in boosting technological capabilities.
Looking ahead, Yılmaz indicated that the government plans to update its medium-term economic program in the coming days while maintaining its core policy framework. He reiterated that inflation is expected to decline steadily, with projections suggesting it could fall to the low 50s in August and below 50% in September, barring any unforeseen global events.
On the subject of potential interest rate cuts, Yılmaz deferred to the CBRT, noting that decisions on this matter fall within the central bank’s jurisdiction. He reiterated the government’s goal of achieving single-digit inflation by 2026, recognizing the challenges posed by external economic factors such as currency depreciation and rising external debt.