2023 Economic Assessment and 2024 Expectations

Extended Presidents' Meeting

4 January 2024, Ankara

Honourable Minister,

Esteemed Members of our Board of Directors, our Branch Presidents,

Esteemed Members of the Press,

Ladies and Gentlemen,

Our Economic Assessment Meeting, which we hold at the beginning of every year and which contains an inventory of the year left behind and the expectations for the year now beginning, will, God willing, be a means to auspicious outcomes.

I thank our esteemed Minister for attending our meeting, and at this first gathering of the new year I respectfully greet you all.

The global economy, which after 2022 — a year that witnessed extraordinary developments — was expected to enter a moderate recovery trend in 2023, has displayed a performance below expectations. Indeed, global growth forecasts, which stood at %3.7 at the beginning of the year, have now fallen to %3.0.

Coming to the fore in this development are global inflation, which rose at an unstoppable pace after the Russia-Ukraine War, and the sharp monetary tightening measures taken by the leading central banks in their fight against inflation.

While rising geopolitical tensions continue to increase uncertainty regarding the near-term outlook, and although headline inflation has fallen in almost all economies and thereby eased the pressure on household incomes, core inflation is still running relatively high.

As financial conditions have taken on a restrictive character owing to the further general rise in real interest rates in recent months, activity is seen to be slowing in interest-sensitive sectors, above all the housing market, and especially in Europe's economies based on bank financing.

In this framework, it is unfortunately estimated that in 2024 as well the difficulties created by inflation and by weak growth expectations will continue to be faced.

For as the effect of tighter financial conditions, weak trade growth and low business and consumer confidence is felt ever more strongly, the slowdown trend in the global economy continues.

The persistence of cost pressures, the increases recorded in energy and food prices and the signs of a rise in inflation expectations will force central banks in 2024 to keep policy rates high for longer than expected. This in turn has the potential to create additional stress in financial markets.

In addition to economic developments, political uncertainties will also be one of the most important items on the global economy's agenda in 2024. While the United States presidential elections in particular are expected to have significant global effects, the “election economy” effect will also be felt in India, which is the world's most populous country, as well as in strategically important countries such as Indonesia and Taiwan.

Since the effect of these election processes on the global business world and on society will be considerable, they are likely to shape the policies and priorities of some of the world's largest and most influential economies.

A significant part of the alliances, trade agreements and joint ventures relating both to 2024 and to the years that follow will vary depending on the results of these elections and on the style of politics that comes to the fore.

Honourable Minister,

Valued guests,

As the global economy thus experienced one of the most difficult periods of recent years, the Turkish economy too of course passed through a significant year of testing.

Türkiye, which in 2022 achieved the distinction of being the 3rd fastest-growing country in the G20 with %5.6, entered 2023 with this motivation as well.

Indeed, in January, on an annual basis, increases of %10.3 in exports, %4.5 in industrial production, %33.9 in retail sales and %94.0 in total turnover were recorded, and the unemployment rate had fallen to %9.7.

However, our country, which unfortunately faced the greatest disaster in its history as a result of the two major earthquakes centred on Kahramanmaraş on 6 February, suffered a great shock as economic activity was seriously disrupted in our 11 provinces whose share in GDP exceeds %10.0 and which carry out %8.6 of total exports.

Thank God, as our state and our nation acted in a spirit of national solidarity and with extraordinary effort to bind up the wounds during the earthquake period, it became possible for the reconstruction and rebuilding of our disaster-stricken provinces to begin swiftly.

Despite these earthquakes, which have been described as “the disaster of the century”, the Turkish economy showed great resilience by growing %4.0 in the first quarter of the year, sustained this performance in the second quarter as well and, by growing at a rate of %3.9, succeeded in decoupling positively within the global economy.

Finally, the Turkish economy, which grew at a rate of %5.9 in the third quarter of the year, succeeded in this period in becoming the 2nd fastest-growing country in the G20 after India, and thus signed its name to a significant success by recording growth for 13 consecutive quarters.

In such a period, when our country along with the leading economies is confronting the problem of inflation and is in a process of monetary tightening, the acceleration of the Turkish economy's growth rate is a development that deserves appreciation.

We have full confidence that our Türkiye, which has carried the flag of exports to more than 200 countries and has made very great strides in many fields, from the economy to infrastructure and urbanization and from education to health, will sustain this success in the coming period as well and, overcoming the middle-income trap in the 2nd century of the Republic, will enter the ranks of the world's 10 largest economies.

Honourable Minister,

Valued guests,

While growth on a global scale is expected to remain weak in the near term owing to tightening financial conditions, recovering energy and commodity prices and rising uncertainties, should trade tensions worsen further and suppress external demand, it may become possible for inflationary pressures to flare up again.

All of these come to the fore as topics that will directly or indirectly affect the economic policies of our country as much as those of the whole world in 2024.

We wholeheartedly believe that, thanks to our country's existing manufacturing potential, its flexible production capacity and its proximity to large markets, it will succeed in decoupling positively in 2024 as well.

At the same time, we are aware that we are still at the beginning of the road, that many steps yet to be taken await us, and that important duties fall to all the actors of the economy, from the economic administration to the business world and from our producers to our consumers.

At this point, as MÜSİAD, we wish to reiterate once again that we are pleased that the minimum wage has been raised to the level of TRY 17,002 with an increase of nearly %50, so that our employees are not crushed by inflation. Today, as yesterday, our fundamental principle is that no employee's labour should go to waste and that all our citizens should attain a wage level at which they can lead a dignified life.

Of course, especially in inflationary periods, uncertainties regarding the determination of the minimum wage increase and expectations diverge. In this framework, the continuation of effective policies in the fight against inflation and the protection of household purchasing power must be our priority in the coming period as well.

We must not lose sight of the fact that in the fight against inflation fiscal policy is at least as effective as monetary policy. In this context, the “tax reform” whose good news our esteemed Minister gave in recent days becomes still more important at this point.

Especially once the disruptive effect of the earthquake on the budget has passed, the reduction and simplification of VAT rates and the revision of the SCT system within the scope of tax reform are the major reforms that Türkiye's fiscal system needs.

Indeed, in Türkiye the share of indirect tax revenues not only does not fall below %60 but periodically pushes %70. This structure unfortunately distorts both tax justice and income distribution.

Making changes to the income tax brackets is another of the reforms needed to render the tax system fairer. Our current 5-bracket tax system causes an unfair income distribution, especially for middle-income groups.

Introducing further gradation into our income tax system and adding sixth or seventh brackets, as is seen in international examples, will ensure that the tax burden on the middle class is distributed more fairly.

Honourable Minister,

Valued guests,

The price stability that will be established together with inflation, which we estimate will begin to retreat especially after the second half of the year, will support Türkiye in reaching its long-term economic goals.

The attainment of historic record levels in exports and in employment, the positive course of the non-energy current account balance and the uninterrupted continuation of increases in industrial production are each proof of our country's strong macroeconomic infrastructure.

We have full confidence that under the leadership of our President Mr. Recep Tayyip Erdoğan first and foremost, of our Minister of Treasury and Finance Mr. Mehmet Şimşek and of all the other stakeholders of the economic administration, the process of production-, export- and employment-oriented growth will continue.

We believe that the Turkish economy will be one of the best-growing countries in 2024 as well and that in the new century of our Republic it will achieve a growth performance above the world average.

On this occasion, as MÜSİAD, we wish to state once again that, as always, we are ready to put our shoulder to the wheel so that our country may make a start worthy of the name of its “Century of Türkiye” claim.

Honourable Minister,

Valued guests,

With this I have completed our assessment of 2023 and our projections for 2024. Now, after receiving the assessments of our Minister of Treasury and Finance Mr. Mehmet Şimşek, we will bring to a close the first part of our meeting, which is open to the press.

As I hand over the floor to our esteemed Minister in order to hear his valuable views, I extend my gratitude to you all for your valued participation.