Vice President Cevdet Yılmaz on Wednesday expressed optimism and asserted that while consumption is expected to slow as part of a disinflationary process, Türkiye is unlikely to experience a “hard landing” – a term that refers to a rapid and sharp downturn following a period of growth.
Yılmaz emphasized that the government’s focus remains on balancing inflation control with continued economic expansion. “There will definitely not be a hard landing. We do not foresee any danger in this regard,” he told business daily EKONOMI. “There may be partial declines in the growth rate, but we will certainly not move into negative territory.”
Türkiye has been grappling with persistently high inflation, a challenge exacerbated by global supply chain disruptions and fluctuating energy prices. Authorities have delivered aggressive tightening as of the second half of last year aimed at reining in inflation, which eased to an annual rate of 61.8% in July, according to official data, accelerating what is expected to be a sustained slide.
The Central Bank of the Republic of Türkiye (CBRT) has hiked its benchmark policy rate by 4,150 basis points since June last year and kept the rate unchanged at 50% since March to allow the tightening to have an impact.
Higher interest rates typically lift borrowing costs for mortgages, auto loans and credit cards.
Yılmaz acknowledged that the reduction in inflation has been aided by the so-called “base effect” – a statistical phenomenon in which inflation appears lower when compared to unusually high levels in the previous period. However, he cautioned that the base effect alone would not be sufficient to bring inflation under control without the government’s broader economic program, which includes measures to curb demand.
“We are seeing the effects of demand-oriented fight against inflation as part of the implemented program,” he said. “Consumption was previously quite high, but now it is moving toward more moderate levels. This is in line with what the program predicts,” the vice president said.
Balancing growth, inflation
While the government focuses on taming inflation, Yılmaz underscored that it also seeks to stimulate production, investment and exports. The government is attempting to shift the composition of economic growth away from consumption toward more sustainable drivers, such as manufacturing and foreign trade.
“This approach aligns with a disinflationary growth strategy,” said Yılmaz.
He explained that the current policies are creating a downward impact on demand, but stressed this is not destructive to growth. “Although growth may soften compared to previous periods, we will continue to grow,” he asserted.
Yılmaz also addressed concerns about Türkiye being stuck in a “middle-income trap,” a term used to describe a situation where a country’s growth slows after reaching middle-income status, preventing it from advancing to high-income status.
He argued that Türkiye cannot escape this trap through low wages, but rather by increasing its technological capabilities.
Yılmaz said the government would update its medium-term economic program, planned for the coming days, but will preserve its main policy framework.
He says they are primarily relying on the CBRT’s technical evaluations regarding inflation, adding that President Recep Tayyip Erdoğan strongly supports the program, and there are no issues with economic coordination.
“While maintaining our core objectives, we will make updates, taking into account developments in Türkiye and around the world. All macroeconomic figures, including growth, employment, foreign trade, tourism, and inflation, are being updated,” he said.
“However, when it comes to inflation, we will naturally review it in dialogue with the central bank … Fundamentally, we base our approach on the technical evaluations and data from our central bank, and we review these in close consultation with them.”
The vice president indicated that the disinflationary phase has already begun, with inflation rates expected to decline steadily. He projected that inflation could drop to the low 50s in August and below 50% in September, barring any unforeseen global developments.
Prospects for rate cuts
When asked about the possibility of interest rate cuts if inflation falls to around 45% to 50%, Yılmaz avoided speculation, stating that such decisions are under the purview of the central bank.
However, he noted that both high inflation and high interest rates are detrimental to the economy, and the government aims to reduce both over the medium term. He reaffirmed the government’s target of achieving single-digit inflation by 2026.
Türkiye has faced a series of economic challenges in recent years, including currency depreciation and rising external debt, which have contributed to inflationary pressures. The government’s efforts to stabilize the economy have been met with cautious optimism, though concerns remain about the potential for external shocks to derail progress.
Yılmaz pointed out that developing countries are entering a period where interest rates are expected to decline globally. He expressed hope that this trend, along with a potential revival in Europe, the nation’s biggest trade partner, could benefit Türkiye’s exports and attract foreign investment.
“This would be a positive development for us,” he said, noting that a more stable global environment could bolster Türkiye’s economic outlook in the coming years.
