Simsek’s pledges, which were preceded by statements by Turkish President Recep Tayyip Erdogan, during which he called on the Turks to be patient until the inflationary pressures facing the country subside, came at a time when the International Monetary Fund announced estimates of a slowdown in the growth of Turkey’s economy with a decline in the current account deficit in 2024, in light of the policy… The monetary tightening that it recently resorted to.
“We will continue to accumulate international reserves as much as market conditions allow,” Simsek wrote in a message on the “X” website, on Friday after his meeting with a group of investors in the British capital, London.
The current economic administration in Turkey enjoys a lot of confidence locally and internationally, which leads to widespread reliance by the Turks on it to confront the internal crises that the Turkish economy is suffering from, as well as the external shocks in the region and the world, and their direct and indirect repercussions on the various economic sectors, especially with… Turkey’s presence in the heart of a region ablaze with events.
How able is the Turkish economy to absorb shocks? Will Simsek and the current economic group succeed in transforming Turkey’s economy and surviving the current inflationary pressures? When can this be achieved?
Trust…the most prominent title
Turkish journalist, Kerem Ülker, said in exclusive statements to the “Eqtisad Sky News Arabia” website, that the new economic team “was the most successful step that Turkey has taken in the past few years… It is a very important step for Mehmet Simsek, known to European economies, to become And the Gulf, as Minister of Finance, and Hafiza Ghaya Arkan, well-known to the American and European markets and international organizations, will become President of the Turkish Central Bank.
He adds: “The common point between these two names is trust,” stressing that “the first great example of the feeling of confidence in international markets was represented by Turkey increasing its investment portfolio by $18 billion.”
Fitch Ratings Agency had previously raised its future outlook for Turkey’s foreign exchange reserves to “stable” and confirmed its rating at B, saying that changing economic policy may reduce overall financial instability in the near term.
- The International Monetary Fund expects Turkish economic growth to slow to 3.25 percent next year, compared to 4 percent in 2023.
- The Fund also expects Turkey’s current account deficit to shrink to about 3 percent of GDP in 2024.
- The World Bank earlier raised its growth forecast for the Turkish economy for the current year from 3.2 to 4.2 percent.
- Standard & Poor’s credit ratings agency last month revised its outlook for Turkey from “negative” to “stable”, attributing this to the changes that occurred in the policy followed by the country. At the same time, the agency maintained the country’s credit rating at B.
While Ülker believes that “the Turkish economy is still fragile,” he believes that “it has become stronger and more durable despite this compared to previous periods,” and is on the right path, despite the problems witnessed by some countries that have trade relations with Turkey, and despite external shocks, including… That war in Ukraine.
He added: “Global crises may, in one of their aspects, represent opportunities for Turkey. Turkey has been affected by these matters in the recent period, but the Turkish economy is flexible and Turkish producers have a fast-acting structure that can adapt to changes.”
Hence, he believes that “Turkey’s defense against external shocks is strong,” but at the same time he warns of the impact of a regional problem with Israel (in light of the current conflict between Israelis and Palestinians and the Al-Aqsa flood operation), and he believes that this would affect his country in one way or another, Especially with regard to oil prices and its repercussions on the country’s current account, he said.
Inflationary pressures
For his part, the researcher specializing in Turkish affairs, Taha Odeh Odeh, points out in exclusive statements to the “Eqtisad Sky News Arabia” website that there are developments taking place in the Turkish economy that we have clearly followed during the recent period, especially with regard to inflationary pressures that have begun to slow down. It is true that they are rising. But it was lower than experts’ estimates.
He added: “There are also some reassurances from the new economic team that things are on the way to improvement, but this requires some patience on the part of the Turks, especially in light of the efforts made by the government and the economic team in particular for economic recovery.”
- A month ago, Turkish media reported that President Erdogan said that his country must be patient as it seeks to reduce inflation, given the delayed effect that will appear later from tightening monetary policies.
- Speaking to reporters, Erdogan said that he hopes to see a “very clear” decline in inflation within 12 months, given that economic policies “will take some time” to have an impact.
Oglu explains that the coming weeks are likely to witness important developments on the economic level, with the release of growth data, in addition to the upcoming meeting of the Central Bank. He continues: “In light of the results of those meetings, we can see a different picture from the one we followed before.”
Inflation rose after the currency crisis at the end of 2021 and touched the highest level in 24 years at 85.51 percent a year ago, last October. So far this year, the lira has lost approximately 30 percent of its value.
While the inflation rate began to reach its peak after President Recep Tayyip Erdogan signed a series of sharp increases in interest rates, which reached 30 percent from 8.5 percent in four months.
Fiscal and monetary policies
Although Turkish President Recep Tayyip Erdogan has been a lifelong supporter of the unorthodox economic theory that high interest rates cause inflation. But he reversed his approach after winning a difficult election in May that coincided with the worst economic crisis of his two-decade rule.
At its last meeting, the Turkish Central Bank, led by Hafiza Erkan, decided on another significant increase in interest rates, to 30 percent, the highest level in 22 years. The new increase of 5 percent comes on the heels of a strong increase of 7.5 percent last August, which exceeded all expectations.
Oglu stresses that the plan followed by the government is “moving at a slow but correct pace,” according to the words of Finance Minister Mehmet Simsek and Central Bank President Hafiza Ghaya Arkan.
- Official data indicate that annual consumer price inflation in Turkey rose to 61.53 percent last September (a lower rate than expected).
- Consumer price inflation recorded 4.75 percent on a monthly basis.
- The domestic producer price index rose 3.40 percent on a monthly basis in September, recording an annual rise of 47.44 percent, according to data from the Turkish Statistical Institute.
- International Monetary Fund estimates indicate that inflation is expected to slow to 46 percent by the end of 2024 from 69 percent at the end of the current year 2023.
External shocks
In his conversation with the “Eqtisad Sky News Arabia” website, the researcher on Turkish affairs touches on the impact of external developments on the Turkish economy and financial and central plans, saying: “Without a doubt, the developments that the world is witnessing – especially with regard to the war in Ukraine and its repercussions – affect everyone and not only… Turkey only… There are also threats facing Turkey after the Ankara bombing, the raids in Syria and Iraq, and other files that could have an impact on the economy.”
Accordingly, he believes that “the coming weeks are very delicate and sensitive… It is true that they are at the political level, but their effects will become largely clear at the economic level – either negatively or positively – and the government is dealing with the political event carefully, so that it does not reflect negatively on the economic situation.”
A pessimistic view of the future
For his part, the Turkish economic writer, Nagi Bakir, in exclusive statements to the “Eqtisad Sky News Arabia” website, commenting on the Minister of Finance’s efforts to secure appropriate international reserves, points out that “the search for external resources continues, but there are no results so far.”
While he points out that his country is following a tight monetary policy to reduce inflation and the current account deficit, he says at the same time: “However, we have local elections ahead of us and therefore the money (salary increases, etc.) will be distributed to the social segments to obtain votes… before the elections.” Scheduled next March, income increases will be made to satisfy workers, civil servants and pensioners.
He adds: “And then, on the contrary, a tight monetary policy will continue to be implemented, domestic demand will be unusually suppressed, credit payments will be tightened, etc..”
He explains that inflation and other macroeconomic indicators do not improve in a country that consumes more than it produces, in addition to weak resources and investments.
He concluded his speech by noting that the shocks witnessed by the global economy “will make things worse for the Turkish economy,” adding at the same time: “There is no chance for the Turkish economy to recover with the one-man system… I am pessimistic about the future.”
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