Turkey keeps economic course steady amidst shocks, according to Simsık
The Turkish economy, battered by the spring 2023 disaster, has been on a steady path towards recovery, according to the latest reports. The Turkish Ministry of Treasury and Finance, in collaboration with the Central Bank of the Republic of Turkey, has been instrumental in managing budget deficit policies, ensuring that the deficit does not exceed 5% of GDP, even during crises.
The budget deficit, which averaged 2.4% of GDP over the past 20 years, rose above 5% due to the disaster. However, it has shown a significant decline, dropping to 4.7% of GDP in 2024 and is expected to be around 3.5%-3.6% this year.
The current account deficit, a crucial indicator of a country's trade balance, stood at 0.8% of GDP last year and is projected to be around 1.5% this year. This improvement is a positive sign, indicating a healthier trade balance for Turkey.
Turkey is currently in the second phase of its medium-term program, which focuses on disinflation and resilience-building. The government's updated medium-term program expects inflation to slow to 28.5% this year and further drop to 16% in 2026. Inflation, one of Turkey's toughest challenges, has already shown signs of improvement, with August data showing a drop below 33%.
The Central Bank of Turkey has cut its benchmark policy rate for the second consecutive month, a move aimed at further curbing inflation. The five-year credit default swap (CDS) for Turkey has also dropped to 244 basis points, its lowest level since February 2020, reflecting improved investor confidence.
Turkey's economy has shown resilience in other areas as well. Exports have increased by approximately 6% since the start of the medium-term program, and Turkey's share in EU imports has risen from 3.3% to 4%.
The government has spent about $90 billion to help rebuild 11 southeastern provinces affected by the earthquake. The European Union's growth slowed to 0.8% during the program period, and its imports contracted by 2.2%. Despite these challenges, Turkey's economy has shown remarkable resilience.
Minister Mehmet Şimşek remains optimistic, stating that 'the worst is behind us' and that 'we are now entering a period of steadily improving financial conditions.' He further emphasised that Turkey is on a disinflationary path and that the third stage of Turkey's program, beginning in 2026, will focus on structural reforms and transitioning into a low-inflation ecosystem.
The government is also addressing concerns about abuse in bankruptcy protection cases, looking at measures to prevent such instances. Fighting inflation remains a top priority, and the government is committed to achieving its targets set out in the medium-term program.
In conclusion, Turkey's economy is showing signs of recovery, with improvements in key economic indicators such as the budget deficit, current account deficit, and inflation. The government's efforts to address challenges and improve investor confidence are paying off, and Turkey is on track to achieve its medium-term goals.
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