Economy
Türkiye’s fight against inflation ‘bearing fruit’: OECD chief economist
Türkiye’s fight against inflation is “bearing fruit,” and it is vital for the monetary and fiscal policies to be maintained, the Organisation for Economic Co-operation and Development (OECD) chief economist, Alvaro Pereira, said Tuesday.
He said that the annual average inflation is expected to be around 30% this year, 18.5% next year, citing forecasts from the outlook report published by the OECD on Tuesday.
“Inflation usually has a huge impact on people and on their real incomes, and so, bringing down inflation has to continue to be a top priority for Türkiye, and we think that the policy is working,” he told Anadolu Agency (AA).
“It’s important (for) both monetary and fiscal policy to continue in the same way, so that you are able to continue to bring down inflation.”
His remarks came the same day as official data showed the annual inflation in Türkiye eased further to 35.41% in May, marking the lowest since late 2021.
Pereira noted that it usually “takes a while for things to change in a dramatic way” and that it is “not surprising that (inflation) is sticky,” saying that inflation in service prices is stickier than goods prices.
“It’s not surprising that the process takes a bit longer than it was anticipated at first, but we think that maintaining the policy is absolutely essential on political developments,” he said. “Right now, the most important thing is that, in terms of fiscal and monetary policies, the way, the movement will have to be in the same direction, independently but together.”
In its report, the OECD said that both “fiscal and monetary policies have contributed decisively to the recent decline in inflation.”
Citing the latest OECD estimate, he added that Türkiye’s budget deficit is expected to fall to 3% of gross domestic product (GDP) next year, largely due to improved revenue performance, while capital spending will decline.
According to the OECD estimate, shared on Tuesday, the fiscal deficit is expected to decline from 4.9% of GDP in 2024 to 3.3% in 2025 and 3.0% in 2026.
Pereira, meanwhile, also stated that U.S. tariffs that shook the global economy and trade will not have a major impact on the Turkish economy, but it is important to “find a solution and get some sort of an agreement with the U.S. administration to lower trade barriers between the two countries.”
“Türkiye has some industries that can certainly export even further to the U.S.,” he said.
“More tourism could be interesting, (as) Türkiye is a beautiful country with wonderful culture, and you have a lot of tourism but you have the potential to bring even further, and so, if you get good macroeconomic stability at the same time that you’re able to get an agreement with the U.S., I think this will also help to bring more foreign direct investment (FDI) and more tourism to the country,” he added.
Macroeconomic stability
Pereira emphasized that macroeconomic stability attracts foreign investors for long-term investments in the country.
“In every single country that attracts a lot of FDI in the long and medium term, (they) usually need to have macroeconomic stability. That’s why I insist that, to bring down inflation and (we need) to make sure that we have finances, competitors (and) liabilities under control,” he said. “You have to have a friendly business environment, and there have been some interesting reforms in the past few years with that.”
“We have to work on two levels first to continue to bring down inflation and to make sure that the fiscal situation is under control, that’s first thing, and second thing is, in certain areas of Europe, Türkiye can be more competitive, and continuing there, form a path to trying to improve business climate is going to be absolutely essential-if we continue to work on those bills, and I think this will help Türkiye,” he said.
“But still, more can be done to bring down red tape and to improve regulations,” Pereira said. “In Türkiye … bringing down those barriers and improving the business climate should be a top priority way forward.”
He mentioned that uncertainties over the global economy have yet to weaken, as it remains high when it comes to economic and trade policies. He said these uncertainties have started to affect consumer and business confidence, as well as economic activity indicators.
Pereira highlighted that the U.S. tariff uncertainties are hampering global economic growth. The OECD downwardly revised its growth forecasts for this year and the next for almost all countries due to this outcome.
He warned that these developments could fuel further inflation in some countries, advising them to try and negotiate to reach an agreement to reduce trade barriers to avoid further trade fragmentation, especially between the U.S. and China.
“Both economies still depend on each other, so each economy brings something to the table the other does not have-we hope that the two biggest economies in the world get some sort of a deal, so that they’re able to reduce uncertainty (and) trade barriers, and get to a situation in which we have (them) doing better going forward,” he said.
Global growth estimates lower
The OECD downwardly revised its global economic growth for this year from 3.1% to 2.9% in its latest report released on Tuesday.
The organization’s March release estimated that the global economy would grow 3% next year, but it downwardly revised its 2026 growth forecast to 2.9% as well.
These downward estimates come after a 3.3% global economic growth last year, according to the OECD.
The organization cited increased uncertainties over trade policies for its downward revision.
Meanwhile, the Turkish economy’s growth outlook was downwardly revised from 3.1% to 2.9% for 2025 and from 3.9% to 3.3% for 2026, as per the latest OECD Economic Outlook report.
China and the U.S. kicked off a new round of trade talks in London on Monday, Beijing’s state media report said, as the world’s two biggest economies seek to shore up a shaky truce after bruising tit-for-tat tariffs.
“On June 9, local time, Vice Premier He Lifeng … began holding the first meeting of the China-U.S. trade consultation mechanism with the American side in London,” state news agency Xinhua reported.
Top U.S. and Chinese officials were due to meet for talks to defuse the high-stakes trade dispute that has widened in recent weeks beyond tit-for-tat tariffs to export controls over goods critical to global supply chains.
Officials from the two superpowers were expected to meet at the ornate Lancaster House to try to get back on track with a preliminary agreement struck last month in Geneva that had briefly lowered the temperature between Washington and Beijing.
The talks, which were due to start around 11:30 a.m. GMT on Monday, come at a crucial time for both economies, with investors looking for some relief from U.S. President Donald Trump’s cascade of tariff orders since his return to the White House in January.
“The next round of trade talks between the U.S. and China will be held in the U.K. on Monday,” a U.K. government spokesperson said on Sunday. “We are a nation that champions free trade and have always been clear that a trade war is in nobody’s interests, so we welcome these talks.”
Gathering there will be a U.S. delegation led by Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer and a Chinese contingent helmed by Vice Premier He Lifeng, a Reuters report said.
In Geneva, the two sides agreed to reduce steep import taxes on each other’s goods that had had the effect of erecting a trade embargo between the world’s No. 1 and 2 economies, but U.S. officials in recent weeks accused China of slow-walking on its commitments, particularly around rare earths shipments.
The inclusion of Lutnick, whose agency oversees export controls for the U.S., is one indication of how central rare earths has become. He did not attend the Geneva talks, at which the countries struck a 90-day deal to roll back some triple-digit tariffs they had placed on each other.
Positive conclusion
The second round of meetings comes four days after Trump and Chinese leader Xi Jinping spoke by phone, their first direct interaction since Trump’s Jan. 20 inauguration.
During the more than one-hour-long call, Xi told Trump to back down from trade measures that roiled the global economy and warned him against threatening steps on Taiwan, according to a summary by the Chinese government.
But Trump said on social media that the talks focused primarily on trade led to “a very positive conclusion,” setting the stage for Monday’s meeting in London.
The next day, Trump said Xi had agreed to resume shipments of rare earth minerals and magnets to the U.S. China’s decision in April to suspend exports of a wide range of critical minerals and magnets upended the supply chains central to automakers, aerospace manufacturers, semiconductor companies and military contractors around the world.
“We want China and the U.S. to continue moving forward with the agreement that was struck in Geneva,” White House spokesperson Karoline Leavitt told the Fox News program “Sunday Morning Futures” on Sunday. “The administration has been monitoring China’s compliance with the deal, and we hope this will move forward to more comprehensive trade talks.”
The preliminary deal in Geneva sparked a global relief rally in stock markets and U.S. indexes that had been in or near bear market levels have recouped the lion’s share of their losses.
The S&P 500 Index, which at its lowest point in early April was down nearly 18% after Trump unveiled his sweeping “Liberation Day” tariffs on goods from across the globe, is now only about 2% below its record high from mid-February. The final third of that rally followed the U.S.-China truce struck in Geneva.
Still, that temporary deal did not address broader concerns that strain the bilateral relationship, from the alleged illicit fentanyl trade to the status of self-governed Taiwan and U.S. complaints about China’s state-dominated, export-driven economic model.
While the U.K. government will provide a venue for Monday’s discussions, it will not be a party for them; they will have separate talks later in the week with the Chinese delegation.
On Monday, the dollar slipped against all major currencies as investors waited for news, while oil prices were little changed.
Syria will be fully reconnected to the SWIFT international payment system “in a matter of weeks” after more than a decade of sanctions, the country’s central bank governor said on Monday.
In an interview with the Financial Times (FT) in Damascus, central bank chief Abdulkader Husrieh detailed a road map for restructuring the country’s financial system and monetary policy in order to rebuild the decimated economy.
We “aim to enhance the brand of the country as a financial hub, given the expected foreign direct investment in rebuilding and infrastructure – this is crucial,” Husrieh told the FT.
“While significant progress has been made, there’s still much work ahead,” he added.
Syria has been cut off from global markets since 2011 and the start of a long civil war that left the country isolated, its infrastructure crumbling, and most of the population living below the poverty line.
Yet, since the fall of the Bashar Assad regime late last year, new authorities have received a major reprieve last month when U.S. President Donald Trump unexpectedly announced the lifting of sanctions. The European Union soon followed, while last week it also said it would provide a 175 million euros ($200 million) package to support Syria’s social and economic recovery.
European Commissioner for the Mediterranean Dubravka Suica said Syria is at a “pivotal moment” with a real chance to shift from conflict to peace and stability. “We remain firmly committed to supporting Syrians in this crucial phase,” she said.
Rejoining the SWIFT system would mean another significant step for Damascus on a path of normalization and rebuilding.
SWIFT’s return will help encourage foreign trade, cut import costs and facilitate exports, the central bank governor said. It would also bring much-needed foreign currency into the country, strengthen anti-money laundering efforts and ease the dependence on informal financial networks for cross-border trade.
“The plan is for all foreign trade to now be routed through the formal banking sector,” Husrieh said.
Before Assad’s ousting, the Syrian pound had lost about 90% of its value against the dollar. It has since strengthened, but is still volatile, with differences remaining between the official and black market rates. Husrieh said he aimed to unify the rates and was “transitioning towards a managed float” of the pound.
Starbucks China will reduce the prices of some of its iced drinks by an average of 5 yuan ($0.70) across the country, the company said on Monday, as competition heats up and consumers become more cautious about spending.
In a post on its Weixin social media account, the U.S. coffee chain said it would offer more “accessible” prices on dozens of its drinks, including non-coffee drinks and the Frappuccino, from Tuesday.
While China is Starbucks’ second-largest market after the U.S., the coffee market is highly competitive and consumers have become more cautious about spending because of the slowing economy and concerns about job security.
The new approach means some of Starbucks’ drinks will be priced as low as 23 yuan, the post said.
Domestic rivals such as Luckin Coffee and Cotti have priced their drinks as low as 9.9 or even 8.8 yuan, while deep-pocketed internet companies JD.com and Alibaba Group have entered the food delivery market, adding to the competition. With offers and vouchers, Chinese coffee consumers can buy themselves a drink for as little as 2.9 yuan.
A person close to Starbucks said the company was not reducing prices in response to intense price competition, but was looking to attract more customers in the afternoon.
The individual requested anonymity as they were not in a role that allowed them to comment to the media.
“Starbucks likely has a longer-term strategy, which is to focus on the demand for non-coffee items in the afternoon among consumers,” the source said.
Starbucks had said previously that it would not engage in a price war. However, it has also introduced smaller-sized drinks and issued coupons, which have lowered prices for customers.
The U.S. giant has also been looking to revive its business in China by selling stakes.
Pulled apart between rising geopolitical tensions and constrained public finances, Britain’s finance chief Rachel Reeves is set to unveil feared trade-offs in a government spending review on Wednesday.
Prime Minister Keir Starmer is boosting the defense budget, and reports point to the National Health Service (NHS) being bolstered – forcing other key ministries to tighten their belts.
“Sharp trade-offs are unavoidable,” said the Institute for Fiscal Studies (IFS), a respected think tank, of the spending plans through to 2029-2030.
Reeves, the chancellor of the exchequer, is to detail day-to-day spending plans in her review to Parliament on Wednesday.
An inaugural budget in October featured tax rises and big spending announcements on infrastructure, meaning belt-tightening has to come from elsewhere.
Already in March, Labour announced contested cuts to disability welfare payments, hoping to save more than 5 billion pounds ($6.8 billion) by the start of the next decade.
Thousands of protestors gathered in central London on Saturday, many holding placards that read “tax the rich, stop the cuts – welfare not warfare.”
The government on Sunday announced 86 billion pounds of investment in science and technology and defense by 2030.
Reeves hopes the spending will boost sluggish growth, which risks added pressure from the tariffs trade war unleashed by U.S. President Donald Trump.
Reeves is set to announce a funding boost of up to 30 billion pounds for the NHS, according to The Times newspaper.
Britain’s media has in recent days reported on tough, last-minute discussions between the Treasury and the interior ministry, particularly regarding the police budget, as well as with the energy department amid fears for the U.K.’s carbon-reduction commitments.
Defense priority
Reeves has amended her fiscal rules to allow the government more headroom for investment in the run-up to the spending review.
At the same time, she wishes to balance the books so that tax revenues match day-to-day spending, meaning the government borrows only to invest.
The chancellor has allowed the Treasury to borrow more, particularly for infrastructure projects across the vital housing and energy sectors.
This has handed her a windfall of 113 billion pounds over five years.
“When it comes to capital spending, government investment is set to be sustained at historically high levels in the coming years,” the IFS noted.
“If spent well, this should help contribute to growth and to better public services in years to come.”
Citing Russia’s invasion of Ukraine, London has announced it will increase its defense budget to 2.5% of U.K.’s gross domestic product (GDP) by 2027 – and up to 3.0% by 2034, helped by cutting international aid.
“While going for growth and fixing the NHS will still be central to the Spending Review, bolstering the nation’s defense is now considered an urgent pressing need,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
While seeking to cut costs, it has been reported that the Labour government may later this year announce plans to lift a cap on child benefits and reverse a decision to scrap a winter heating benefit for millions of pensioners, after a backlash over the policies from some of its party members.
Possible “U-turns on benefit and welfare spending, increased pressure to ramp up defense spending and higher borrowing costs have left the chancellor, Rachel Reeves, in a sticky position,” concluded Ruth Gregory, deputy chief U.K. economist at Capital Economics.
“If she wishes to avoid a political backlash and/or an adverse reaction in the financial markets, she probably has little choice but to raise taxes in the Autumn Budget.”
The government has already hiked a business tax that entered into force in April.
China’s export growth slowed down to a three-month low in May, official data showed on Monday, while shipments to the U.S. also plunged due to tariffs.
Coupled with factory-gate deflation, which deepened to its worst level in two years, it pointed the pressure remained high on the world’s second-largest economy on both the domestic and external fronts.
U.S. President Donald Trump’s global trade war and the swings in Sino-U.S. trade ties have in the past two months sent Chinese exporters, along with their business partners across the Pacific, on a roller-coaster ride and hobbled world growth.
Underscoring the U.S. tariff impact on shipments, customs data showed that China’s exports to the U.S. plunged 34.5% year-over-year in May in value terms, the sharpest drop since February 2020, when the outbreak of the COVID-19 pandemic upended global trade.
Total exports from the Asian economic giant expanded 4.8% year-over-year in value terms last month, slowing from the 8.1% jump in April and missing the 5.0% growth expected in a Reuters poll, customs data showed on Monday, despite a lowering of U.S. tariffs on Chinese goods which had taken effect in early April.
“It’s likely that the May data continued to be weighed down by the peak tariff period,” said Lynn Song, chief economist for Greater China at ING.
Song said there was still front-loading of shipments due to the tariff risks, while acceleration of sales to regions other than the United States helped to underpin China’s exports.
Imports dropped 3.4% year-over-year, deepening from the 0.2% decline in April and worse than the 0.9% downturn expected in the Reuters poll.
Exports had surged 12.4% year-over-year and 8.1% in March and April, respectively, as factories rushed shipments to the U.S. and other overseas manufacturers to avoid Trump’s hefty levies on China and the rest of the world.
While exporters in China found some respite in May as Beijing and Washington agreed to suspend most of their levies for 90 days, tensions between the world’s two largest economies remain high and negotiations are underway over issues ranging from China’s rare earths controls to Taiwan.
Trade representatives from China and the U.S. are meeting in London on Monday to resume talks after a phone call between their top leaders on Thursday.
China’s imports from the U.S. also lost further ground, dropping 18.1% from a 13.8% slide in April.
Zichun Huang, economist at Capital Economics, expects the slowdown in exports growth to “partially reverse this month, as it reflects the drop in U.S. orders before the trade truce,” but cautions that shipments will be knocked again by year-end due to elevated tariff levels.
China’s exports of rare earths jumped sharply in May despite export restrictions on certain types of rare earth products causing plant closures across the global auto supply chain.
The latest figures do not distinguish between the 17 rare earth elements and related products, some of which are not subject to restrictions. A clearer picture of the impact of the curbs on exports will only be available when more detailed data is released on June 20.
China’s May trade surplus came in at $103.22 billion, up from the $96.18 billion the previous month.
Other data, also released on Monday, showed China’s imports of crude oil, coal, and iron ore dropped last month, underlining the fragility of domestic demand at a time of rising external headwinds.
Beijing in May rolled out a series of monetary stimulus measures, including cuts to benchmark lending rates and a 500 billion yuan low-cost loan program, aimed at cushioning the trade war’s blow to the economy.
China’s markets showed muted reaction to the data. The blue chip CSI300 Index climbed 0.29% and the benchmark Shanghai Composite Index was up 0.43%.
Deflationary pressures
Producer and consumer price data, released by the National Bureau of Statistics on the same day, showed that deflationary pressures worsened last month.
The producer price index fell 3.3% in May from a year earlier, after a 2.7% decline in April and marked the deepest contraction in 22 months.
Cooling factory activity also highlights the impact of U.S. tariffs on the world’s largest manufacturing hub, dampening faster services growth as suspense lingers over the outcome of U.S.-China trade talks.
Sluggish domestic demand and weak prices have weighed on China’s economy, which has struggled to mount a robust post-pandemic recovery amid a prolonged property slump and has relied on exports to underpin growth.
Retail sales growth slowed last month as spending continued to lag due to job insecurity and stagnant new home prices.
Businesses have also had to adapt to the falling prices. U.S. coffee chain Starbucks said on Monday it would lower prices of some iced drinks by an average of 5 yuan in China.
While the core inflation measure, excluding volatile food and fuel prices, registered a slightly faster 0.6% year-over-year rise, from a 0.5% increase in April, Capital Economics’ Huang said the improvement looks “fragile.”
She still expects “persistent overcapacity will keep China in deflation both this year and next.”
U.S.-China trade talks set to take place in London on June 9 are expected to take up a series of fresh disputes that have buffeted relations in recent weeks, threatening a fragile truce over tariffs.
Both sides agreed in Geneva last month to a 90-day suspension of most of the 100%-plus tariffs they had imposed on each other in an escalating trade war that had sparked fears of recession.
Since then, the U.S. and China have exchanged angry words over advanced semiconductors that power artificial intelligence, “rare earths” that are vital to carmakers and other industries, and visas for Chinese students at American universities.
U.S. President Donald Trump spoke at length with Chinese leader Xi Jinping by phone last Thursday in an attempt to put relations back on track. Trump announced on social media the next day that trade talks would be held on Monday in London.
The latest frictions began just a day after the May 12 announcement of the Geneva agreement to “pause” tariffs for 90 days.
Export controls
The U.S. Commerce Department issued guidance saying the use of Ascend AI chips from Huawei, a leading Chinese tech company, could violate U.S. export controls. That’s because the chips were likely developed with American technology despite restrictions on its export to China, the guidance said.
The Chinese government wasn’t pleased. One of its biggest beefs in recent years has been over U.S. moves to limit the access of Chinese companies to technology, and in particular to equipment and processes needed to produce the most advanced semiconductors.
“The Chinese side urges the U.S. side to immediately correct its erroneous practices,” a Commerce Ministry spokesperson said.
U.S. Commerce Secretary Howard Lutnick wasn’t in Geneva but will join the talks in London. Analysts say that suggests at least a willingness on the U.S. side to hear out China’s concerns on export controls.
One area where China holds the upper hand is in the mining and processing of rare earths. They are crucial for not only autos but also a range of other products, from robots to military equipment.
The Chinese government started requiring producers to obtain a license to export seven rare earth elements in April. Resulting shortages sent automakers worldwide into a tizzy. As stockpiles ran down, some worried they would have to halt production.
Trump, without mentioning rare earths specifically, took to social media to attack China.
“The bad news is that China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US,” Trump posted on May 30.
The Chinese government indicated Saturday that it is addressing the concerns, which have come from European companies as well. A Commerce Ministry statement said it had granted some approvals and “will continue to strengthen the approval of applications that comply with regulations.”
The scramble to resolve the rare earth issue shows that China has a strong card to play if it wants to strike back against tariffs or other measures.
Student visas don’t normally figure in trade talks, but a U.S. announcement that it would begin revoking the visas of some Chinese students has emerged as another thorn in the relationship.
China’s Commerce Ministry raised the issue when asked last week about the accusation that it had violated the consensus reached in Geneva.
It replied that the U.S. had undermined the agreement by issuing export control guidelines for AI chips, stopping the sale of chip design software to China and saying it would revoke Chinese student visas.
“The United States has unilaterally provoked new economic and trade frictions,” the ministry said in a statement posted on its website.
U.S. Secretary of State Marco Rubio said in a May 28 statement that the United States would “aggressively revoke visas for Chinese students, including those with connections to the Chinese Communist Party or studying in critical fields.”
More than 270,000 Chinese students studied in the U.S. in the 2023-24 academic year.
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