The Turkish government revised its expectations for inflation and growth on Thursday while unveiling an updated medium-term road map that provides a three-year perspective on macro policy and key economic data, including budget and unemployment figures.
Expressing that the medium-term program (MTP) sets out the macroeconomic policy framework and targets as well as the priority reform areas and calendar, Vice President Cevdet Yılmaz delivered a comprehensive presentation in the capital Ankara, unveiling the details and new forecasts.
“In this context, the policies and reforms determined to ensure economic stability and support sustainable growth will constitute the road map of our economy in the next three-year period,” Yılmaz said.
First unveiled last September, the medium-term program is centered around structural reforms, reining in stubborn inflation while eventually ensuring sustainable growth.
Unveiling the policy road map for 2025-2027, Yılmaz said the Turkish government projected a gross domestic product (GDP) growth of 3.5% this year, a 0.5 percentage point downward revision due to rising geopolitical tensions in the region.
“Last year’s growth realized at 5.1%, according to revised data by TurkStat (Turkish Statistical Institute). Due to rising geopolitical risks in the region, we revised this year’s growth expectation to 3.5% from the 4% we announced last year,” Yılmaz said.
He also announced they expected the economy to grow 4% in 2025 and 4.5% in 2026, slightly lowering it from last year’s expectations of 4.5% and 5.0%. The growth is seen rising to 5.0% in 2027.
Data on Monday showed Türkiye’s economy expanded at a slower-than-expected pace in the second quarter, weakening in the face of a yearlong monetary tightening drive, but the quarterly growth rate surprised analysts by remaining positive. The economy grew 2.5% on an annual basis in the April-June period.
Starting his speech, the vice president highlighted the inclusive approach in shaping up the updates to the program, while also recalling the ground covered since the initial announcement of the program last fall.
The government unveiled the MTP shortly after presidential and parliamentary elections last year and a shift in the economic policy that saw the Turkish central bank lifting its benchmark rate from 8.5% in June 2023 to 50% in March this year in a bid to contain inflation.
The annual inflation rate slowed to 51.97% in August, official data showed earlier this week, bringing signs of relief amid expectations for the trend to continue in the upcoming months, which were echoed by Yılmaz on Thursday, despite the revision to figures.
Yılmaz noted the main goal of the medium-term program is to decrease inflation to single digits gradually, increasing growth, investment, employment, production and exports, and distributing income fairly to all segments of society.
Among his remarks, he said that the gross international reserves had increased from $98.5 billion on May 26 last year to $150.4 billion by Aug. 23 this year.
“When we evaluate the last year within the framework of the MTP that we implemented last September, the predictions and targets in the basic macroeconomic indicators have been realized to a great extent,” he said, adding that they expect the disinflation process that began in June to continue in September and beyond.
Moreover, he indicated a decrease of 23.5 points in the inflation rate when compared to June.
Disinflation process
He said the fall in annual inflation to 52% in August showed the disinflation process had started to take effect.
“We expect this trend to continue in September and beyond,” he added. Earlier, the officials said they anticipated the drop to below 50% in reading in September.
However, the government revised inflation expectations to 41.5% for this year, 17.5% for 2025 and 9.7% in 2026, Yılmaz said. Inflation is expected to fall to 7% in 2027.
The vice president in his speech recalled that they identified three periods in the fight against inflation, underscoring that after the transitory period, the period of disinflation was underway. The earlier projection for inflation this year was 33% and 15.2% for 2025.
Treasury and Finance Minister Mehmet Şimşek, meanwhile, also stressed the importance of lowering inflation to single digits.
“In the short term, our main priority is disinflation and price stability. Short-term disinflation may have negative effects on growth, but this is temporary,” Şimşek said.
“For permanent welfare growth and sustainable high growth, we absolutely must reduce inflation to low single digits and ensure price stability,” he said while answering journalists’ questions.
“Because, only in a low inflation environment, access to financing is easier, the country’s economy is more predictable and the investment environment is more favorable.”
Moreover, Yılmaz touched upon other key indicators, including the ratio of current account deficit to national income, explaining that this figure dropped to 4% as of December last year and the year was closed with a current account deficit of $45 billion.
He stated that as of June 2024, the current account deficit declined further, falling to 2.2% of national income and reaching $24.8 billion.
Türkiye’s current account deficit to GDP ratio is projected to decrease further during the program period, with 1.7% this year, 2% next year, 1.6% in 2026 and 1.3% in 2027.
“This decline shows the improvements in the foreign trade balance due to the measures taken and economic reforms implemented in the second half of the year. Thus, we see that the external financing need of the Turkish economy has decreased and the improvement in the foreign trade balance continues,” he outlined.
Moreover, Yılmaz emphasized that the unemployment rate, which was 9.7% in the second quarter of last year, decreased to 8.8% in the second quarter of this year, which he said was the result of increased employment and general economic strength, demonstrating the effectiveness of the implemented economic policies.
Accordingly, the jobless rate is projected to come in at 9.3% this year, revised downwards from 10.3%, he noted. The rate is predicted to stand at 9.6% in 2025 and 9.2% in 2026 before falling to 8.8% in 2027.
At the same time, the vice president highlighted the increase in Turkish lira deposits and the substantial fall in the volume of FX-protected accounts, which authorities began to scale back last year as part of new policies.
Stating that the share of Turkish lira deposits in total deposits was at 39% in January last year, Yılmaz reported that this rate increased to approximately 54% in August this year.
The new program also revised the budget deficit forecast for next year to 3.1% of GDP, down from the previous 3.4%. For this year, it envisions a deficit of 4.9%.
The vice president recently hinted the deficit for this year would be below 5%, well below the 6.4% target foreseen in this year’s budget.
On Thursday, he noted that despite the ongoing earthquake-related spending, rapid recovery was seen in budget balances thanks to steps taken to strengthen fiscal discipline.
The nation’s budget has been plagued by spending after massive earthquakes that rattled the country’s southeast in February last year, killing at least 53,000 people and causing massive infrastructural damage.
