The global economy is undergoing a structural transformation that goes well beyond ordinary cyclical fluctuations. Supply-chain disruptions following the COVID-19 pandemic, energy supply problems, geopolitical tensions, particularly war, protectionist trade policies, U.S. tariffs, and intensifying competition in advanced technologies such as artificial intelligence (AI) are reshaping the fundamental parameters of the global economic system.
For decades, global production was largely organized around cost minimization and the concentration of production in the lowest-cost locations. Today, however, production decisions are increasingly shaped not only by cost considerations but also by supply security, logistical continuity, energy availability, technological capacity and geopolitical risk.
This transformation is driving a search for a new equilibrium in the global economy. Production networks are becoming more diversified, while localization and regionalization trends are gaining strength in strategic sectors. In areas such as energy, semiconductors, defense technologies, critical minerals, AI and advanced manufacturing, economic competition is increasingly viewed through the lens of national security. Understanding the global economy correctly is essential for shaping sound and effective policy decisions. For Türkiye, the central challenge is therefore twofold: strengthening resilience against external shocks while transforming the sources of economic growth and achieving lasting price stability.
The central macroeconomic challenge for Türkiye in the coming period will be to establish a more sustainable balance between price stability and economic growth. Bringing inflation down on a lasting basis is not simply a matter of slowing the pace of consumer price increases. It also requires anchoring expectations, improving the predictability of long-term investment decisions, and directing capital toward more productive areas. For this reason, the disinflation process should be regarded as a macroeconomic precondition for Türkiye’s new growth model.
The change in market expectations also suggests that the disinflation process has become more difficult than initially anticipated. According to the Central Bank of the Republic of Türkiye (CBRT)’s Market Participants Survey, the year-end inflation expectation for 2026 rose from 23.23% in January to 29.21% in July, while the year-end exchange-rate expectation remained broadly stable at around 51.17-51.60 Turkish liras per U.S. dollar. At the same time, the growth forecast for 2026 was revised down from 3.9% to 3.1%. The upward revision in the expected policy rate toward the end of the year also suggests that interest-rate cuts may be postponed for longer than previously anticipated. In short, market expectations shifted toward a combination of higher inflation, weaker growth and a longer period of tight monetary policy.
Given that monetary policy primarily affects demand conditions, maintaining low inflation cannot depend solely on demand management but must also be supported by supply-side policies. Expanding productive capacity, improving productivity, reducing energy costs, upgrading logistics infrastructure and strengthening competitive conditions are equally important structural components of price stability. At the same time, the deterioration in the inflation outlook has been driven largely by external factors, such as oil prices, while the current account deficit has remained below its historical average of around 4% of gross domestic product (GDP). Moreover, the budget deficit as a share of GDP has remained approximately three percentage points below the emerging-market average, while fiscal discipline has continued to support the disinflation process. Against this backdrop, and with a view to maintaining a balance between monetary conditions and economic activity in the second half of the year, the Central Bank may consider gradual interest-rate cuts while preserving a real interest-rate buffer of approximately five percentage points.
Over the medium and long term, however, the key determinant of Türkiye's growth performance will be total factor productivity. According to Treasury and Finance Minister Mehmet Şimşek's recent statements, productivity growth is rebounding, with the figure reaching 2.6 points. The widespread adoption of technology at the firm level, digitalization, improvements in stronger research and development (R&D) capacity, and more efficient resource allocation will be central to productivity growth. As emphasized in recent presentations by CBRT Governor Fatih Karahan, the continued rise in the ratio of R&D expenditures to net sales, reaching approximately 0.35 percent, provides an important indication of this trend.
Türkiye’s geographical position represents another important strategic advantage amid the ongoing transformation of the global economy. However, converting this advantage into lasting economic value will depend on greater export diversification and stronger connectivity. Initiatives such as the recently announced “Sweet Türkiye” program under Turquality can support this process by helping diversify Türkiye’s export markets and expand access to new destinations. Accordingly, a country-specific approach, exemplified by the objective of increasing bilateral trade between Türkiye and the United States to $100 billion, is consistent with such strategies based on export diversification, brand development, and market expansion.
Ultimately, strengthening Türkiye’s position in global value chains will require more than simply increasing export volumes. The technological intensity and value-added structure of exports must also be upgraded. The transformation of the defense industry provides an important example in this regard. Over the past quarter century, the domestic content ratio in Türkiye’s defense industry has increased from around 20% to more than 80%. The next challenge is to transfer this technological and industrial capability to other sectors.
Türkiye’s new growth model should increasingly shift from factor accumulation toward productivity-led growth. High-technology investment, R&D, human capital, digitalization and energy transition will be central to this process. For Türkiye to strengthen its external competitiveness, the key challenge is not only to increase the share of high- and medium-high-technology exports, but also to develop stronger domestic capabilities and translate R&D into commercially scalable products, services, and production processes.
AI will be a major driver of this transformation. Its impact will extend beyond technology companies, reshaping production, logistics, finance, and business decision-making. Data centers, cloud computing, fiber infrastructure, cybersecurity and high-capacity communications networks will therefore become essential components of the new economic infrastructure. Here, the recent opening of the Türksat Data Center represents an important step in strengthening Türkiye’s digital infrastructure.
The coming period will therefore require a shift from quantitative expansion to qualitative transformation. Türkiye’s new growth equation can be summarized in four mutually reinforcing pillars: price stability, productivity growth, technological transformation and energy security. The ability to combine these pillars will determine how effectively Türkiye can translate global economic change into stronger, more competitive, and more resilient domestic production.