According to Mehmet Şimşek, 'the decline in inflation will continue'

Treasury and Finance Minister Mehmet Şimşek attended MÜSİAD's 2023 economic evaluation meeting in Ankara.

Speaking at the event, Şimşek argued that the decline in inflation would continue. Stating, "Growth in Turkey remained strong in 2023," Şimşek said, "If we achieve 4.4 percent, Turkey will have grown more than 1.5 times the global average growth. There is high inflation that is consistent with the Medium-Term Program (OVP). There is a budget performance well below the OVP target. There is a decrease in unemployment. When we look at 2024, growth will remain weak. In the context of this average expectation, the decline in inflation will continue."

Minister Şimşek's statements are as follows:

"There is a significant slowdown in trade in goods. The tightest monetary policy of the last 40 years has been implemented in the US. This time last year, base scenarios for the US were pointing to a recession. Inflation fell, growth remained strong, and employment remained relatively strong. When you look at the US, according to the analysis in the OECD November report, growth in the US in 2023 was 1.7 percent, and it will slow down a bit more in 2024. How did the US achieve this? According to the analyses, the main reason for growth remaining relatively strong compared to forecasts is shown to be that households spent 2.3 trillion dollars from their savings. Companies found resources from capital markets rather than borrowing from the banking sector. 60 percent of companies found resources from capital markets.

As of November, there is 3.1 percent inflation in the US. A soft landing is projected for the US. When you look at the US, one of the main engines of global growth, 2023 continued as a strong year contrary to expectations, and a slight softening is projected for 2024.

When we look at the EU, it is also our largest trading partner. There is a loss of momentum in growth in 2023. Therefore, the main reason for the stagnation in exports is that growth in the EU has fallen from 3.6 percent to 0.6 percent. When we look at the EU, one of the most important aspects that distinguishes it from the US is that 70 percent of companies obtain financing from the banking sector.

"THERE IS ALMOST NO INFLATION IN CHINA"

China, which is decisive in the global economy, saw a moderate recovery in growth in 2023. A slight slowdown is projected for 2024. Housing is an important component here, accounting for 25 percent of the national income. Housing accounts for 70 percent of household income, and housing prices are falling. There is almost no inflation in China. 1 percent inflation is projected in China. These are very brief points regarding the global economy.

"THE DECLINE IN INFLATION WILL CONTINUE"

Growth in Turkey remained strong in 2023. If we achieve 4.4 percent, Turkey will have grown more than 1.5 times the global average growth. There is high inflation that is consistent with the OVP. There is a budget performance well below the OVP target. There is a decrease in unemployment. When we look at 2024, growth will remain weak. In the context of this average expectation, the decline in inflation will continue. We will evolve from a tight monetary policy to a looser monetary policy. In short, this is the summary of 2024. What is important for us is the EU. An increase from 0.6 percent growth to 1.3 percent is a good recovery for the EU. The gradual recovery in the EU appears as a reason to be optimistic. It is a year in which disinflation has clearly emerged and fiscal discipline has been established, excluding the earthquake.

In Turkey, the population is still relatively young and dynamic, so there is a 15-20 year window of opportunity ahead. The total debt ratio, which is 333% in the world, does not appear as a problem in Turkey at 117%.

By upholding the OVP, we are concerned with 'how we can turn these conditions into an opportunity for Turkey' in a period when such challenging global conditions are the new normal. If we can realize the OVP with the support of all segments of society, there are great opportunities for Turkey. We need price stability for the investment climate.

I can say that fiscal policy, excluding the earthquake, is supportive of the disinflation policy. Fiscal policy must also support disinflation; we even need to support both competitiveness and disinflation by increasing productivity through structural reforms and reducing unit costs. It cannot be done with monetary policy alone; it needs to be embraced by all segments of society. The IMF has looked at inflation programs around the world; the average time for successful programs to achieve success was 3.2 years. Our program started last year, and we project single digits by the end of 2026. The program we have put forward is also consistent with the realities of the world.

When viewed on an annual basis, high inflation is the inflation of the last 12 months; we need to see the inflation for the next 12 months differently. We expect increases in the credit rating. We have started to lay the foundations for sustainable high growth.

The decline has started on a monthly basis; with the rapid declines in annual inflation starting in the second half of the year, we see a high probability that the expectations of MÜSİAD members will also converge towards the target. We said that monthly increases in core and headline inflation are currently in line with our program targets; January is an exception, it is like that every year, we do not expect the trend to be broken in essence, it is in line with program targets.

The first goal is price stability, the second goal is fiscal discipline, and the third goal is to bring the current account deficit to a manageable, sustainable level. Reserve accumulation will also lead to a decrease in exchange rate volatility, a decrease in the risk premium, and resilience against financial shocks. (Gold imports) We believe that it will change with the normalization of monetary policy in Turkey. We believe that the current account deficit will settle on a sustainable path of 2.5 percent starting from 2025. The measures we have taken against inflation will also reduce the current account deficit.

There has been a 47 billion dollar increase in Central Bank reserves since May. The Central Bank has made a policy forecast that it will reduce swaps. Both Turkey's net and gross reserves have increased much more strongly than we anticipated in the last 6-7 months.

Some uncertainties are being priced in before the election, but I believe that after April, the belief and confidence in this program will be much stronger because we are determined. Rebalancing has begun in the economy, domestic demand has softened, the impact of external demand has been less downward, and we believe that this gap will narrow."