Türkiye's inflation will be impacted by the recent developments but the downward trend will not change, Treasury and Finance Minister Mehmet Şimşek said on Wednesday.
"There will be no change in the downward trend of inflation; reducing inflation and maintaining that trend is a significant achievement for Türkiye," Şimşek told an event in Istanbul.
The Iran war sent energy prices soaring, posing a challenge for import-heavy economies like Türkiye, where inflation still eased to 30.87% last month. On Tuesday, U.S. President Donald Trump extended the war cease-fire indefinitely.
Şimşek dismissed calls to ease the fight against inflation, arguing that durable and high growth can only be achieved through low inflation.
"This is a very myopic approach," he said. "The path to permanent and high growth is through the process of low inflation. If inflation falls, growth will multiply."
Şimşek stressed what he described as progress made under the government's economic program, implemented since mid-2023.
Inflation had peaked at 85% in October 2022 before easing to 64% by year-end and standing at around 65% in 2023.
Disinflation began in 2024, bringing it down to 44%, followed by a further decline to 31% last year, he noted.
"It is necessary to ask and reflect on the question: Where would inflation have headed if this program did not exist?"
Şimşek also said the current account deficit was expected to widen further this year due to the oil price shock, but that this was temporary.
Şimşek warned that the global economy is facing an increasingly complex environment marked by geopolitical tensions, fragmented trade and rising debt levels.
In the short-term, he pointed to commodity price shocks driven by the Iran war. Over the longer term, he said the world is entering a "new normal" characterized by persistent geopolitical risks and disruptions in global trade.
"Global trade fragmentation could lead to much more destructive outcomes," he said, also cautioning that high global debt levels combined with elevated interest rates could pose systemic risks.
He added that weak external demand may weigh on Türkiye's outlook in 2026, noting that demand dynamics are a more decisive factor than exchange rate movements.
"External demand elasticity is 11 times stronger than exchange rate elasticity. The primary determinant is demand, and unfortunately, as of now, the projections for demand in 2026 are not very positive," said Şimşek.
Şimşek still said Türkiye sees opportunities in shifting economic dynamics, particularly in the defense sector and supply chain reconfiguration.
He highlighted the rapid expansion of global defense spending, which he said could reach $6.6 trillion, creating significant opportunities for Türkiye's well-developed defense industry.
"The world is not the old world anymore. A major trend is emerging before us: global defense industry expenditures. Some countries in Europe are spending 5% of their national income on the defense industry. Türkiye sees a major window of opportunity here," said Şimşek.
"Türkiye has a strong infrastructure in defense industries, and we see this as a major opportunity," he added.
Türkiye achieved a record of more than $10 billion in defense exports last year and secured $18 billion in new orders.
"Do not underestimate this," said Şimşek. "The profit margins of $18 billion-$20 billion in defense industry exports are so high that they are equivalent to $50 billion-$60 billion of traditional exports.
"Türkiye is on the threshold of a new industrial revolution, a period where the defense industry serves as a lever."
