Gardener: Structural Measures to Permanently Free Us from Inflation Are More Crucial Than Ever
The Istanbul Chamber of Industry (ISO) Council held its regular meeting for December with the main agenda of “The Outlook of the World and Turkey Economies as We Approach 2025 and Presentations of the Council Working Groups” at the Odakule Fazıl Zobu Council Hall. In his opening speech, ISO Board Chairman Erdal Bahçıvan emphasized the importance of focusing on the current status of the process referred to as “return to rationality” in the Turkish economy while leaving 2024 behind. He stated, “In summary, we are closing a year in which we have started to see the results of the severe treatment process we entered from mid-2023, but we have not fully overcome the traumas of the past period.” Bahçıvan noted that the disinflation process regarding the most fundamental issue, inflation, is progressing slower than expected, stating, “While our Central Bank targets 36% for the end of 2024, it seems we will close the year around 45%.”
He pointed out that the impact of tight monetary policies is clear in the delayed decline in inflation. When questioning why inflation isn’t decreasing as much as desired, he highlighted the rigidity in expectations, especially among households and the real sector, which struggle to be convinced that inflation will drop. Another issue is the high level of service inflation. He concluded, “As a result, although we have made some progress in inflation, we are in a process where we must remain cautious. Our Central Bank indicates that there is a continuing withdrawal of inflationary factors directly affected by monetary policy, and that expectations are gradually improving. We are experiencing an inflationary situation that we have emphasized for months in its sociological and psychological dimensions.”
He stressed that the solution cannot be solely relegated to monetary policy. He stated that it is now more critical than ever to increase the support of fiscal policy in combating inflation, alongside implementing structural measures that will permanently free us from this issue. “As industrialists, it is certainly our desire to operate under favorable financing conditions. However, while our economy is still undergoing a painful recovery phase, underestimating the risk of a relapse would be a significant mistake. We trust our economic management, especially our Central Bank, in not taking risky and hasty steps until we are sure inflation has permanently decreased,” he added.
Regarding the drop in the current account deficit this year, Bahçıvan remarked that it is a significant gain for putting the economy back on a healthy path. He noted, “This has made it possible to recover international reserves, eliminate the pressure on the Turkish lira, and achieve a stronger improvement in risk premium indicators such as CDS. However, in the current climate of intense uncertainty worldwide, investors’ appetite for risk remains fragile. Consequently, the revival of capital inflows, which is one of the essential conditions for the success of the current economic program, is still insufficient. This situation further emphasizes the importance of maintaining a stable stance in economic policies and instilling confidence among investors. If we continue our efforts against inflation and financial stabilization with patience and determination, I believe next year Turkey will become a much more attractive destination for foreign investments and a strong inflow of external resources can be achieved. Supporting the production economy while resolutely continuing the fight against inflation will bear particular importance. The recent messages indicating increased financing opportunities for our traditional labor-intensive sectors, which are vital for growth and employment, are also very valuable from this perspective. The most crucial element that will crown this entire process is implementing reforms that will elevate our production ecosystem and prepare our sectors for the winds of green and digital transformation,” he concluded.
On developments in Syria, Bahçıvan stated that they are closely monitoring the regime changes and subsequent developments, saying, “Every development in the Middle East affects our country in some way, but developments in Syria directly impact Turkey. First of all, Syria is our neighbor with the longest land borders. The security of our southern border is linked to stability in that country. I hope a stable political structure, where everyone living in Syria feels safe, is established as soon as possible.”
Lastly, regarding the minimum wage announced yesterday, Bahçıvan said, “I wish it to be beneficial and auspicious for our industry, our production life, and our workers.” He also mentioned that the establishment of the ISO Venture Capital Investment Fund has been approved by the Capital Markets Board, and they will swiftly begin efforts to support initiatives that will develop the new technologies needed by the industry.