Economy
Jeers ring out as Merz tells unions Germany must pull itself together
Chancellor Friedrich Merz said Germany must “pull itself together” or risk falling behind in a rapidly changing world, in a speech to trade unionists on Tuesday that was met with jeers, whistles and boos.
After a year in office, Merz’s popularity has sunk and his government has become embroiled in disputes over how far and how fast to reform Europe’s largest economy to revive growth and tackle ballooning healthcare and pension costs.
The sceptical reception among delegates representing workers from across industrial, public and service sectors reflects a wider battle in German politics over the pace of change at a time when established parties are losing votes to the surging far-right Alternative for Germany (AfD).
Merz’s conservatives and their junior ally, the Social Democrats, were meeting later on Tuesday to thrash out differences, with Merz and his Vice Chancellor Lars Klingbeil batting away suggestions that the coalition could collapse.
After two years of recession, Germany returned to growth at the end of last year, but the fragile recovery risks being snuffed out by an energy shock from the war with Iran and new U.S. tariffs targeting carmakers that are already struggling against competition from China.
“The challenges are also so great because we have created problems for ourselves for far too long, problems that we now have to solve. We have simply failed to modernize our country,” Merz told the German Trade Union Confederation (DGB).
“Germany must therefore pull itself together. Germany must tackle the structural problems that we have been putting off for many years, problems that have consequently grown steadily larger. You know it, we all know it.”
Merz said high costs and bureaucracy were hurting business, putting jobs and the prosperity of future generations at risk.
But his case for reforming health and pensions, the latter a straightforward question of “demographics and mathematics,” was greeted with periodic heckling, whistles and laughter, while some in the audience held thumbs-down signs.
Merz argued that significant changes to the welfare system and labor market rules are needed to revive the country’s stagnant economy.
“These reform projects are not a threat; they are a great opportunity,” he said.
Merz had previously promised an “autumn of reforms” to cut costs in Germany’s social welfare system, but legislation has been slow to materialize.
At the end of April, the coalition struck a deal on health insurance changes, which had previously faced opposition from the labor-aligned SPD.
On Tuesday, Merz promised to continue by passing pension reforms – labelling this “undoubtedly the most difficult challenge” – by late summer.
Germany has the oldest working population in the European Union, with a quarter of the country’s workers aged between 55 and 64, according to figures published in February.
Merz warned that demographic trends will mean that a shrinking share of younger workers will have to support growing numbers of pensioners in the future.
He has called for increased private investment in funding retirement.
The sputtering performance of Europe’s largest economy – which is widely forecast to grow only about 0.5% this year – is “simply too little to maintain our prosperity”, Merz said.
Without growth, “there will also be no effective welfare state, good healthcare, or adequate pensions,” he warned.
DGB chair Yasmin Fahimi, who was reelected to her post on Monday, countered that any reforms must include a “fair distribution of the burden” and rejected government proposals to loosen working time regulations.
Over nearly a quarter-century, Türkiye’s defense sector has transformed from foreign-dependent licensed manufacturing into a high-capacity industry driven by high domestic content and robust global exports.
The transformation coincides with the 25-year period of the ruling Justice and Development Party (AK Party), which marked its anniversary on Friday.
Türkiye now develops a broad range of indigenous platforms and systems, invests in critical technologies and exports high-value-added products across the globe.
In 2002, Türkiye had only 56 defense firms and some 62 projects underway. Those figures today stand at more than 4,500 and 1,400, respectively.
The total project volume skyrocketed from $5.5 billion in 2002 to over $100 billion today.
Defense and aerospace exports surged from just $248 million to $10.05 billion in 2025.
Shipments hit $5.79 billion in the first seven months of 2026 and totaled $11.2 billion on an annualized basis as of July.
Türkiye is currently the world’s 11th-largest defense exporter and is close to breaking into the ranks of the top 10.
For much of the past two decades, Ankara has expressed frustration over its Western allies’ failure to provide adequate defense systems against missile threats despite Türkiye being a major NATO member.
That prompted it to invest billions of dollars to transform from a nation heavily reliant on equipment from abroad to one that is a major exporter and where homegrown systems now meet almost all of its defense industry needs.
Its research and development spending increased from $49 million in 2002 to over $3.5 billion, while the domestically produced content ratio increased from 20% to more than 85%.
Shift to domestic development
The Turkish defense sector provides direct employment to over 100,000 people, and the average age of a defense industry worker is 34.
Turkish defense was dominated by off-the-shelf purchases, licensed production and technology transfer in the early 2000s. This trend gradually shifted to promote domestic development, homegrown original design and the localization of critical subsystems.
The sector’s scope of operations expanded as project scales grew, with a broad range of products and technologies emerging, such as armored vehicles, conventional platforms, unmanned systems, warships, jet aircraft, air defense systems, radar and electronic warfare systems, smart munitions, engines, space technology and advanced electronics.
The Turkish defense and aerospace industry made around $1.1 billion in revenue in 2002, while this figure exceeded $20 billion by 2026.
Unmanned aerial vehicles
Unmanned aerial vehicles have been one of the most significant areas of transformation over the past 25 years.
Defense firm Baykar’s Bayraktar TB2 unmanned combat aerial vehicle became one of the most symbolic breakthroughs in Turkish defense.
The combat drones earned worldwide fame after proving their capabilities in several conflicts, including Syria, Libya, Karabakh and Ukraine.
Their success eventually helped Türkiye become one of the world’s top drone exporters.
Baykar’s multirole Bayraktar Akıncı platform further improved Türkiye’s drone capabilities with its high payload capacity, long range, advanced sensors and heavy munitions integration.
Baykar’s Bayraktar Kızılelma carried Türkiye’s drone expertise into the unmanned fighter jet area by combining high speed, air-to-air and air-to-ground capabilities and the ability to operate from short-runway ships.
Turkish Aerospace Industries’ Anka and Aksungur unmanned combat aerial vehicles contributed to the development of high-altitude, long-endurance and strategic reconnaissance and surveillance capabilities of Turkish drones by integrating satellite communications, homegrown electro-optical systems, munitions and engines.
Growing aviation industry
The Turkish Aerospace Industries’ under-development twin-engine stealth fighter Kaan and the Hürjet jet trainer also marked major milestones in Türkiye’s manned aviation.
The Kaan is one of the most technologically ambitious programs in Turkish aviation with its low observability, advanced avionics, mission computer, radar and system integration.
The Hürjet was developed to provide a homegrown trainer platform to advance the country’s capability to develop manned military aircraft.
The Turkish Aerospace Industries T129 Atak helicopter’s product and system integration experience translated into the homegrown T625 Gökbey helicopter, marking a giant leap in rotary-wing technologies.
State-of-the-art naval defense
Beyond aerial systems, Türkiye’s national ship project, called MILGEM, laid the foundation for domestic naval platform design, ranging from corvettes to frigates.
Advancements in combat management systems, sensors and weapon integration became key to ensuring independence and export capacity in naval defense.
The TF-2000 anti-air warfare guided-missile destroyer extended the Turkish Navy’s air defense capabilities to the high seas through its long-range air defense and advanced radar and weapon-sensor integration.
The unique naval engineering capabilities Türkiye gained through the MILGEM project enabled the development of the country’s domestic submarine project, called MILDEN, to develop underwater platforms.
The partnership between the TCG Anadolu drone carrier assault ship and the Bayraktar TB3 combat drone introduced a new sea-air operations concept to the Turkish defense industry, integrating amphibious capabilities with a UAV capable of operating from short runways.
Missile defense systems
Meanwhile, Türkiye’s air defense architecture also grew with Roketsan and Aselsan’s Hisar and Siper missile systems, which contributed to a layered air defense architecture combining integrated sensors, command-and-control systems and missile systems within a single domestic architecture against various threats at low, medium and high altitudes.
Türkiye’s multilayered air defense system, Steel Dome, has been developed by bringing together radars, electro-optical sensors, electronic warfare components, command-and-control infrastructure and air defense weapons of various ranges under a common network.
Roketsan’s Som, Atmaca and Kara Atmaca developed long-range precision strike capabilities for air, sea and land platforms, while the same firm’s Tayfun missile introduced the ability to engage long-range and precision land targets, boosting Türkiye’s strategic deterrence.
Turkish defense also evolved in surface vehicles, with the main battle tank Altay establishing a broad industrial ecosystem around critical technologies, such as armor, active protection, fire control and power packs, while also highlighting the strategic importance of reducing foreign dependence on engines and power packs.
Aselsan’s Koral electronic warfare system and other homegrown radar systems enhanced the effectiveness of air, land and sea platforms in modern warfare through radar detection, electronic jamming, early warning and sensor superiority.
Indigenous technologies
Meanwhile, the PD170, TF6000 and KTJ engine projects brought power system developments for UAV engines, turbofans, cruise missile engines and more.
These projects have been key to ensuring platform independence in defense through indigenous engine technologies.
At the same time, Turkish defense transformed its export model from direct product sales to a broader approach that includes training, maintenance and sustainment, system integration, co-production and technology cooperation.
Turkish defense products are exported to some 185 countries, and around 230 different product types are actively used worldwide.
The sector’s primary goal this year is to further independence efforts in critical technologies, establish high-volume mass production capacity and permanently expand its share in the global market.
Business partnerships should complement the strong political relations between Türkiye and Pakistan, Khawaja Khurram Naeem, the Consul General of Pakistan in Istanbul, said on Thursday, also pointing to the potential of the Pakistani economy and a push to encourage investment and growth.
“We strongly believe that government-to-government cooperation must be complemented by the robust business-to-business engagement,” Naeem said in an address to the “Global Excellence Award Ceremony,” organized by the Islamabad Chamber of Commerce and Industry (ICCI) in Istanbul.
Starting his speech, the consul general noted that the close relationship between Türkiye and Pakistan, two brotherly countries, is “based on a shared history, mutual trust, and a common vision for economic prosperity.”
He added that the business forum provided an important opportunity to further strengthen commercial and investment ties between the two nations.
Pointing to positive developments in Pakistan’s economy, Naeem said the Islamabad government has taken important steps to encourage investment and create a more business-friendly environment.
“The government’s commitment to gradually reducing the corporate tax rate to a more competitive level demonstrates the determination to encourage investment and economic growth,” he added.
He also went on to highlight the potential for regional cooperation involving Türkiye, Pakistan and Central Asia amid the changing geopolitical landscape.
Naeem said Pakistan has particularly significant potential in the textile and ready-made garment sectors, while also noting that the country has extensive production capacity and a young population.
“Sustainable economic growth can only be achieved through active cooperation between the private sectors of both countries, reciprocal visits, and the establishment of long-term partnerships,” he said.
Naeem invited business representatives to explore new opportunities, forge new connections, and develop mutually beneficial partnerships through the forum.
In his speech, Naeem also thanked all the institutions that contributed to organizing the event, particularly the Islamabad Chamber of Commerce and Industry and the Istanbul Chamber of Commerce (ITO), and other Turkish partners, and expressed hope that economic activities between Pakistan and Türkiye would continue to grow stronger.
At the event, the business leaders recalled that the current bilateral trade volume between Türkiye and Pakistan of around $1.2 billion is relatively modest and urged for more steps, including more B2B meetings and reciprocal visits, to elevate the cooperation.
South Korean automaker Hyundai on Friday started mass production of its new all-electric IONIQ 3 model at a factory in Türkiye’s northwestern Kocaeli province.
It makes Hyundai the first foreign automaker to manufacture battery-powered passenger cars in Türkiye and also marks the company’s first EV production in Europe.
The launch represents a significant step in Türkiye’s strategy to position itself as a regional production hub for electric vehicles and battery technologies while attracting new investments in next-generation mobility.
Industry and Technology Minister Mehmet Fatih Kacır said the investment demonstrates growing international confidence in Türkiye’s manufacturing capabilities and industrial ecosystem.
“The investment is one of the most concrete outcomes of our vision to make Türkiye one of the leading countries in next-generation mobility technologies,” Kacır told the start-of-production ceremony at Hyundai Motor Türkiye’s Izmit plant.
In June, Hyundai also announced it would build a new 55 million euros ($63.8 million) battery assembly facility that it says will strengthen the investment in the production of the IONIQ 3.
The facility will assemble battery packs using automated systems in cooperation with Hyundai Mobis.
“An international automaker is producing a fully electric passenger vehicle in our country for the first time,” said Kacır.
“The accompanying battery investment demonstrates that Türkiye has crossed an important threshold in its goal of becoming a global production hub for electric vehicles and battery technologies.”
Hyundai is investing approximately 250 million euros in the project and will initially produce 30,000 IONIQ 3 vehicles annually at the Izmit facility.
The plant has operated in Türkiye for nearly three decades and is Hyundai’s first and longest-running overseas manufacturing facility outside South Korea.
It has produced 13 different models and about 3.3 million vehicles since operations began in 1997. The Izmit plant currently produces the i20 and Bayon models.
Government investment incentives have helped expand the factory’s annual production capacity from 50,000 vehicles in 2002 to 230,000 today.
Hyundai Motor Group plans to invest $90 billion globally by 2030, launching 21 fully electric and 13 hybrid models.
Building on Türkiye’s automotive industry
Kacır said the automotive industry has become one of the main pillars of Turkish manufacturing, increasing annual production from 357,000 vehicles to 1.5 million over the past 23 years.
Automotive exports have risen to $41.5 billion from $4.8 billion in 2002.
The sector directly employs around 60,000 workers in vehicle manufacturing and nearly 250,000 in the supplier industry.
Kacır said the government views the global shift toward electrification, connected vehicles and autonomous driving technologies as an opportunity to strengthen Türkiye’s industrial competitiveness.
He reiterated that the domestically developed Togg electric vehicle project was conceived not only as a car brand but as the foundation of a broader mobility ecosystem encompassing battery technologies, software, power electronics and charging infrastructure.
“The success of our new mobility vision depends on expanding the transformation initiated by Togg across the entire automotive industry,” he said.
“It is therefore extremely important that global manufacturers already producing in Türkiye direct their next-generation mobility investments to our country.”
EV market expanding rapidly
Türkiye’s domestic electric vehicle market has also grown rapidly.
Kacır said more than 450,000 electric vehicles are currently on Turkish roads, while fully electric models account for more than 17% of local vehicle sales this year.
The government expects the number of electric vehicles in circulation to exceed 1.5 million by 2030.
Kacır said Türkiye offers international investors significant advantages, including a large domestic market of 86 million people, a $1.6 trillion economy, an extensive supplier network and logistics infrastructure, as well as preferential access to around one billion consumers through the customs union with the European Union and free trade agreements.
Kacır said Hyundai’s investment is expected to encourage additional next-generation mobility projects and attract further foreign investment, particularly from South Korean companies.
“We hope Hyundai’s investment decision will serve as an example for other South Korean companies,” he said.
“Türkiye will continue to support all investors who produce, develop technology, create qualified employment and strengthen our position in global value chains.”
Inflation expectations among market participants in Türkiye rose slightly for the end of the year but dropped for the 12-month horizon, a survey showed on Friday.
According to the Central Bank of the Republic of Türkiye’s (CBRT) survey for August, year-end consumer price inflation is expected to reach 29.43%, up from 29.21% in the previous survey.
The 12-month inflation forecast declined to 23.69% from 23.95%, indicating that participants continue to expect disinflation over the coming year despite a slightly higher projection for the end of 2026.
Forecasts for inflation in 24 months time, however, edged up to 18.03% from 17.83%, the survey showed.
Türkiye’s annual consumer price inflation eased to 31.75% in July 2026, down from 32.11% in June.
On Thursday, the CBRT adjusted its end-2026 inflation forecast upward to 28% from 26% mainly due to energy and food price pressures. But it left its interim target unchanged at 24%.
The bank also kept its interim inflation targets for end-2027 and end-2028 at 15% and 9%, respectively.
Friday’s survey also showed a weaker outlook for the Turkish lira. Participants raised their year-end U.S. dollar/lira forecast to 51.66 from 51.55, while the 12-month exchange rate expectation increased to 57.43 from 56.69.
Growth expectations were broadly unchanged. Respondents maintained their 2026 GDP growth forecast at 3.1%, while trimming their projection for the following year to 4% from 4.1%.
The survey continued to point to expectations of gradual monetary easing by the central bank.
Participants expect the CBRT to keep its policy rate at 37% at its next Monetary Policy Committee (MPC) meeting. They see the one-week repo rate declining to 36.13% at the following meeting and 35.25% at the third meeting.
Respondents now expect the policy rate to stand at 29.59% in 12 months time, slightly higher than in the previous survey.
Higher oil prices that have weighed on inflation expectations have prompted the CBRT to keep its one-week repo rate unchanged for four straight months.
Azerbaijan overtook Russia to become Türkiye’s largest pipeline natural gas supplier in June, according to official data.
Türkiye imported around 1.01 billion cubic meters (bcm) of pipeline gas from Azerbaijan in June, data compiled from the Energy Market Regulatory Authority (EPDK) showed.
Iran was the second-largest supplier, with 883 million cubic meters (mcm), while Russia ranked third with 882 mcm.
Russia had been Türkiye’s largest pipeline gas supplier in each of the first five months of 2026. Azerbaijan, however, has ranked as Türkiye’s top supplier for June since 2023.
Azerbaijan supplied 744 mcm of pipeline gas to Türkiye in June 2023, around 997 mcm in June 2024 and 1.02 bcm in the same month of 2025.
The EPDK data showed Türkiye’s total natural gas imports fell 6.19% year-over-year to around 3.06 bcm in June.
Pipeline deliveries accounted for about 2.78 bcm of total imports, while liquefied natural gas (LNG) imports stood at 282 mcm. All of Türkiye’s LNG imports in June came from Algeria.
Despite the decline in imports, Türkiye’s natural gas consumption rose 4.59% year-over-year to approximately 2.83 bcm.
Industrial consumption accounted for around 1.09 bcm, while gas use in the transformation and conversion sector, which includes electricity generation, reached 594 mcm. Household consumption stood at 710 mcm.
Türkiye’s natural gas storage volume stood at around 5.27 bcm at the end of June. Underground storage facilities held approximately 4.97 bcm, while LNG terminals accounted for the remaining 296 mcm.
Severe droughts and record-low river levels are disrupting Eastern European nuclear generation, forcing Romania to shut down its last working reactor and straining Hungary’s capacity to keep its plant online, sparking broader debate on how to adapt atomic energy to an increasingly extreme climate.
Reliance on river water for cooling nuclear reactors has long been an issue and has repeatedly led to reduced power output in the summer months, especially in France, which is more dependent on nuclear power than any other country.
But the extremity of drought and heat this year in Europe, which has experienced more warming than any other continent, has added urgency to a debate about adaptation.
Hungary was forced to cut its 2-gigawatt Paks nuclear plant’s output to just over 10% earlier this month, barely escaping a full shutdown for the first time in 44 years. It is now operating at 25% of its capacity.
Romania’s state-owned Nuclearelectrica shut down its last working reactor on Thursday after efforts to divert cooling water to the plant were not enough.
Part of solution but also problem
Nuclear power plants have the advantage of generating baseload power without carbon emissions, meaning they have a role in avoiding fossil fuel burning and tackling climate change.
Romania and Hungary are both committed to expanding their nuclear production as a source of ample, domestic power, but that means finding a way to cool reactors that depends less on river water levels.
Diana Urge-Vorsatz, a professor at the Central European University in Vienna, said scientific modelling showed the trend was for Central and Eastern Europe to become drier.
“This is not only due to less rains, but because the soil moisture and groundwater levels have dropped over the past years, and less precipitation and more heat waves exacerbate soil drying,” she said.
At a conference last year of the Hungarian Hydrological Society, water engineers already warned that “flow patterns may become more extreme and volatile” on the Danube, one of Europe’s longest rivers.
Now governments are seeking solutions under pressure as the emergency output cuts at Hungary’s and Romania’s nuclear plants have forced them to ask companies and households to cut power consumption.
Among the measures proposed, Hungarian Prime Minister Peter Magyar said on Wednesday his government would build what he referred to as a riverbed sill – a submerged, dam-like structure – to raise water levels. Also, two barges could be sunk on Friday to lift water levels to try to avert a shutdown, as the river is expected to shrink further in the coming days.
The country is also reviewing the designs for the planned Paks 2 nuclear expansion that rely on the Danube for cooling. The former government of Viktor Orban selected Russia’s Rosatom for the work without a tender in 2014.
Different technology but water still required
Romania’s Nuclearelectrica operates two 706-megawatt reactors that account for a fifth of the country’s power production. They use Canadian CANDU technology that relies on heavy water, in which the hydrogen in water is replaced with a heavier isotope, to slow neutrons.
The four reactors of Hungary’s Paks plant, which generate around half of Hungary’s power, are Russian-made pressurised water reactors.
Both technologies pump water from the Danube for cooling and then release the water back into the river.
In contrast, Czech and Slovak nuclear power plants use wet cooling towers, which need less water, with the steam evaporated in the process emitted to the atmosphere.
Scientists have raised the idea of hybrid cooling that would supplement river cooling with towers.
Attila Aszodi, professor and nuclear expert at the Budapest University of Technology and Economics, said, however, it was unlikely to be economical to retrofit a cooling tower to the original Paks reactors.
“I don’t think that for the remaining 20-plus years, I mean, the remaining lifetime of the Paks 1 power plant, it would be economical to install a large cooling tower,” Aszodi told Reuters. “A new evaluation of the cooling methods available on the site is definitely necessary.”
Romania plans intervention in Danube
In neighboring Romania, the country’s only nuclear plant sits on a river branch called the Old Danube, which intersects with Bala, another branch.
In 2024, the government approved a project worth 1.02 billion lei ($225 million) to lift the riverbed of the Bala branch to manage the water flow.
The proposed solution includes moving the intersection of the branches further upstream, raising the riverbed sill on the deeper Bala arm.
The project has been delayed, and the government has given no information on when it could be completed. Asked about the impact of low Danube river levels on plans to add two more reactors, Nuclearelectrica told Reuters studies showed the Bala project would ensure that four reactors could function at full capacity.
Eugenia Gusilov, director of the Romania Energy Center think tank, agreed it was feasible, adding alternative cooling methods could be considered before works start.
“Building Units 3 and 4 still makes sense if the necessary hydrotechnical works are done,” she said.
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