President Recep Tayyip Erdoğan held a phone call with British Prime Minister Keir Starmer on Tuesday to discuss bilateral ties, regional and global issues, as well as defense and trade cooperation.

The leaders reviewed recent progress on Türkiye’s potential procurement of Eurofighter Typhoon fighter jets, according to a statement by the Presidency’s Directorate of Communications.

The two sides expressed optimism that developments in this area would further strengthen defense cooperation between Ankara and London, the statement said.

Türkiye has been in negotiations to acquire up to 40 Eurofighters to enhance its air force. The jets are built by a consortium of Germany, Britain, Italy and Spain, represented by companies Airbus, BAE Systems and Leonardo.

While the U.K. has been eager to proceed with the sale and all manufacturing partners except Germany have expressed support, the deal has remained stalled for months.

But officials have recently voiced progress in negotiations.

Erdoğan on Sunday said Britain and Germany showed a “positive” stance on Türkiye’s potential purchase of Eurofighters, stressing that Ankara wants to finalize the acquisition as soon as possible.

On Tuesday, Erdoğan also told Starmer that he hopes that negotiations to update the free trade agreement (FTA) between Türkiye and the United Kingdom would conclude within this year, the statement said.

The sides have completed the first round of talks on modernizing the agreement, the Turkish Trade Ministry said on Friday.

The current agreement, signed when Britain left the European Union, has been under review to expand its scope. Talks were paused during last year’s election that saw Labour Party return to government after 14 years in opposition.

The annual trade volume between the two countries reached $22 billion in 2024, with the U.K. ranking as Türkiye’s seventh-largest trading partner. Türkiye runs a trade surplus of $8 billion.

During the phone call, Erdoğan also raised concerns over the worsening humanitarian situation in Gaza, stressing that deaths from starvation could not be prevented and that immediate and unhindered access to humanitarian aid must be ensured, according to the statement.

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China’s strong rhetoric against price wars among producers is raising expectations that Beijing could initiate industrial capacity cuts in a long-awaited, yet challenging, campaign against deflation, which carries risks to economic growth.

Communist Party leaders pledged this month to step up regulation of aggressive price-cutting, with state media running its harshest warnings yet against what it describes as a form of industrial competition that damages the economy.

These signals echo Beijing’s supply-side reforms a decade ago, which aimed to reduce the production of steel, cement, glass, and coal. This was crucial in ending 54 consecutive months of falling factory gate prices.

This time, however, the fight against deflation will be much more complicated and poses risks to employment and growth, economists say. The trade war with the U.S., meanwhile, is intensifying price wars, squeezing factory profits.

Challenges Beijing didn’t face last decade include high private ownership, misaligned incentives at local and national levels and limited stimulus options in other economic sectors to absorb the job losses resulting from any capacity cuts.

Beijing views employment as a key factor in maintaining social stability. Exporters and even the state sector are already shedding jobs and cutting wages, while youth unemployment runs at 14.5%.

“This round of supply-side reform is far, far more difficult than the one in 2015,” said He-Ling Shi, economics professor at Monash University in Melbourne.

“The likelihood of failure is very high and if it does fail, it would mean that China’s overall economic growth rate will decline.”

Economists expect that any efforts by Beijing to reduce capacity will be undertaken in small, cautious steps, with officials – keen to achieve annual economic growth of roughly 5% – keeping a close eye on spillover effects.

An expected end-of-July meeting of the Politburo, a decision-making body of the Party, might issue more industry guidelines, although the conclave rarely delivers a detailed implementation roadmap.

Analysts expect Beijing to first target the high-end industries that it once billed as the “new three” growth drivers, but which state media now singles out for fighting price wars: autos, batteries, and solar panels.

Their expansion accelerated in the 2020s as China redirected resources from the crisis-hit property sector to advanced manufacturing to move the world’s No.2 economy up the value chain.

However, China’s industrial complex, which accounts for a third of global manufacturing, appears bloated across the board.

Most sectors have capacity utilisation rates below the 80% “healthy” level, Societe Generale analysts said, blaming weak domestic demand and an investment-driven growth model that favours producers over consumers.

U.S. and EU officials have repeatedly complained that this model is flooding global markets with cheap goods made in China and endangers their domestic industries.

A foreign chemicals company manager, surnamed Jiang, who requested partial anonymity to discuss the industry, said that overcapacity in her sector was evident as early as 2023, yet firms continue to expand.

“If money is cheap and abundant, any company thinks it won’t go bankrupt and can crush competitors to death,” Jiang said.

Local incentives

For all the state support manufacturers receive, most are privately owned, unlike the raw material producers Beijing trimmed last decade, largely through blunt administrative orders.

Reducing capacity now requires a less predictable process of curbing subsidies, cheap land supply, preferential loans or tax rebates, then letting markets pick winners and losers.

But the local officials who would have to implement this have the opposite incentive: developing industry champions that draw supply chain investments and employment to their region.

“Local governments, in their efforts to transform the local economy, encouraged firms to invest in these new sectors,” like solar or batteries, a policy adviser said on condition of anonymity due to the topic’s sensitivity.

“There’s nothing inherently wrong with transformation and upgrading, but the problem is that everyone is targeting the same few sectors,” said the adviser, adding that the U.S. trade war has exposed such industries as being “too big.”

Yan Se, deputy director of the Institute of Economic Policy at Peking University, said local government resistance would turn “important and necessary” capacity cuts into a long-term, gradual process that won’t end deflationary pressure on its own.

Stimulating demand would be more effective, Yan told a conference last week.

Forever blowing bubbles

Producer prices dropped for the 33rd month in June.

China faces a painful trade-off between a deeper and shorter stretch of price falls as output cuts trigger job losses and a longer run of overcapacity and deflation that delays the blow to employment, economists say.

Macquarie estimates that the reforms of the last decade chopped tens of millions of jobs. However, an ambitious project to redevelop shantytowns across China, estimated by Morgan Stanley at 10 trillion yuan ($1.4 trillion), offered displaced workers new opportunities.

Manufacturing is now much less labor-intensive. Still, jobs will be lost and “there’s no way” other economic sectors, also facing weak consumer demand, can absorb the shock, said Monash University’s Shi.

In another echo of the last decade, high-level discussions of urban redevelopment resurfaced last week. But any new investment in that area would likely be too small to compensate for lost industrial activity and jobs.

“I don’t think we can expect real estate to digest job losses from supply-side reforms anymore,” said John Lam, head of Greater China property research at UBS.

“It was used for that in the past and it created overcapacity in our sector,” said Lam. Authorities “don’t seem to be going in that direction, which I think is correct.”

Türkiye has secured some $2.8 billion in green financing for a railway project that aims to make a direct rail connection to Azerbaijan’s Nakhchivan exclave, Anadolu Agency (AA) reported on Tuesday.

Thanks to the efforts of the Treasury and Finance Ministry, 2.4 billion euros ($2.8 billion) of external financing has been obtained for the Kars-Iğdır-Aralık-Dilucu Railway Project, which will strengthen Türkiye’s regional railway connection, the report said.

Treasury and Finance Minister Mehmet Şimşek reposted the article by AA on his X account and said the financing will strengthen Türkiye’s infrastructure, competitiveness and efficiency.

Ankara signed the agreement with a group of lenders led by Japan’s MUFG Bank, the report said, adding the package is backed by Sweden’s EKN and Austria’s OeKB export credit agencies, as well as a unit of the Islamic Development Bank.

The project is part of Türkiye’s broader infrastructure strategy and is expected to enhance regional trade and connectivity while supporting green transition goals.

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Tunisia is a kind of Mediterranean gateway to Africa, Türkiye’s ambassador to the country, Ahmet Misbah Demircan, said in an interview published Monday, highlighting the robust commercial ties between the two nations.

“Tunisia is a country of tourism, agriculture, phosphate, dates, olive oil, and more,” Demircan told the Franchising.market platform, adding that it sources many goods from Europe, Türkiye and China.

“Currently, we have $1.2 billion in exports across all sectors to Tunisia,” he added.

“Our cultural closeness and the trust Tunisians have in our country and products are at a very high level,” he said.

“Direct trade and semi-finished goods production are possible in Tunisia. Software, energy infrastructure, tourism, agriculture, and the export of industrial spare parts and raw materials are seen as opportunity areas,” he added.

At the same time, he pointed to education and said that 1,600 Tunisian students are studying in Türkiye.

Furthermore, he cited its tourism appeal, while also underscoring the North African country’s role as “a gateway,” and also as “a hub.”

“In line with our country’s African Partnership Policy, it’s fair to say that Tunisia holds a unique potential as a base for Türkiye’s access to Sub-Saharan Africa,” Demircan said.

“Tunisia is essentially the gateway of the Mediterranean to Africa. We want to further highlight Tunisia’s role as a hub. I emphasize this potential of Tunisia at every opportunity and level in our country,” he explained.

The ambassador also cited the historic ties and drew attention to what he said was “trust” of Tunisians for Turkish products.

‘Major milestone’

“We can say that the visit of our trade minister, Mr. Ömer Bolat, to Tunisia on June 25, 2024, was a major milestone in our bilateral relations,” he furthered.

“Our country has made investments worth $712 million in Tunisia,” he added.

Moreover, he said that some 43 Turkish companies provide employment to 2,088 people in Tunisia. He also cited that investments span various sectors, including services, food industry, textiles and ready-to-wear, metal, construction materials, plastics, chemicals, and transportation.

Demircan also said that as the gateway to Africa, Tunisia was “a very important partner and a long-standing friend for Türkiye.”

“It is a stable and significant export market for our country,” he said, adding that the free trade agreement (FTA) that entered into force in 2014 has enabled trade to expand across a wide spectrum.

“Textiles, iron-steel-metal, and machinery equipment stand out as the main areas of our exports,” he maintained.

From a franchise and retail perspective, the recognition of Turkish food, textile, and industrial products in Tunisia is “quite high,” according to the ambassador.

“In food exports, products like Turkish delight, pumpkin and sunflower seeds, hazelnuts, walnuts, and pine nuts are among the top items. Many well-known Turkish textile and ready-to-wear brands already have franchise stores in Tunisia, and these brands are well-received,” he elaborated.

Economic potential

Referring to President Recep Tayyip Erdoğan’s “equal partnership” vision regarding relations with African nations, Demircan said they are “ready to work on cooperation and investment opportunities in all areas on a win-win basis.”

“We firmly believe that the economic potential between us and Tunisia – viewed as the entry point to the Maghreb and Africa – will be realized in the near future.”

Answering the question related to incentives that Tunisian authorities offer to foreign investors, he cited some key priority sectors that Tunisia promotes, such as nanotechnology, biotechnology, electronics industry, food industry, automotive, aerospace, maritime, railway industry, textile and apparel industry, information and communication technologies, and renewable energy sectors.

He also mentioned trade as an inseparable part of diplomacy, while also pointing to the role of the private sector. “The private sector not only advances our economic ties, but also contributes to strengthening the relations between our countries, which are connected by history and geography,” he said.

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U.S. Treasury Secretary Scott Bessent suggested on Monday a full review of the Federal Reserve (Fed) as the institution is needed, ramping up rhetoric over performance and independence of the central bank in recent months.

“What we need to do is examine the entire Federal Reserve institution and whether they have been successful,” Bessent told CNBC television.

While Jerome Powell’s term as Fed chief ends in May 2026, U.S. President Donald Trump has recently zoomed in on the Fed’s $2.5 billion renovation project as a possible avenue for his ousting.

The fresh attacks came after months of criticism aimed at Powell as the central bank held interest rates steady this year, holding off cuts while policymakers monitored the effects of Trump’s tariffs.

This has drawn ire from the president, who repeatedly insisted the Fed was too late in slashing rates.

Asked if he would offer his opinion on firing Powell, Bessent told CNBC on Monday: “I think that what we need to do is examine the entire Federal Reserve institution and whether they have been successful.”

He added that he would be speaking late Monday about regulation, which the Fed also has a role in, one day before the official opening of a conference hosted by the Fed.

But Bessent did not comment on a Wall Street Journal report over the weekend that he had privately set out his case to Trump for why the president should not try to fire Powell.

The Journal reported that Bessent’s reasons focused on issues including effects on the economy and markets, alongside the likely political and legal obstacles Trump would encounter.

Bessent told CNBC there has been “very little, if any, inflation” from Trump’s wide-ranging tariffs so far, and suggested that central bankers appear unable “to break out of a certain mindset.”

Since returning to the presidency in January, Trump has imposed a 10% levy on goods from nearly all trading partners, with higher rates separately on imports of steel, aluminum and autos.

While the effects on consumer inflation have been muted so far, given that Trump has backed off or postponed the harshest among his proposed measures, economists expect that data over the summer months will give a better idea of the tariffs’ impact.

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Inflation in Türkiye is forecast to fall to 29.66% as of the end of the year, according to a survey by the country’s central bank on Monday that showed expectations continued to improve ahead of a key policy rate meeting this week.

The projection is down from 29.86% expectation in June and 30.35% forecast in May, according to the Survey of Market Participants for June by the Central Bank of the Republic of Türkiye (CBRT).

Aggressive monetary tightening since mid-2023, combined with favorable energy prices, has helped reduce Türkiye’s annual inflation rate by more than half over the past year.

The inflation lastly dipped to 35.05% in June. Monthly inflation was 1.37%, with price declines in key categories such as food and beverages reinforcing the central bank’s view that a disinflation trend is taking hold.

The central bank has repeatedly cited expectations as one factor determining the course of its monetary policy.

In May, it maintained its year-end mid-point estimate for the consumer price index (CPI) at 24%, with an upper band of 29%. Turkish officials continue to emphasize that inflation will remain within this forecast band.

The better-than-expected June inflation print renewed expectations that the central bank would return to an interest rate-cutting cycle at the meeting of its Monetary Policy Committee (MPC) this Thursday.

All but one of the 17 economists in a Reuters poll forecast the bank to cut the policy rate this week. The median forecast was for a 250 basis-point cut to 43.50%, with predictions ranging from 42.50% to 44.50% among those expecting an easing step.

Thirteen respondents expected a cut of 250 basis points, while one predicted the bank to hold rates at 46%.

Most expect rate cuts to continue in the months ahead, with the policy rate falling to 36% by the end of 2025, according to the bank’s survey.

The monetary easing is likely to continue through at least the third quarter of 2026, an earlier poll of economists showed.

If delivered, the move would mark the first cut since a surprise 350 basis-point hike in April, which reversed an earlier easing cycle. That tightening helped stabilize markets after the jailing of Istanbul Mayor Ekrem Imamoğlu sent Turkish assets and the lira sharply lower in March.

Imamoğlu was arrested pending trial over graft charges.

Morgan Stanley also expects a 250 basis-point cut this month, followed by three additional cuts of the same size to bring the policy rate to 36% by year-end.

Markets see inflation 12 months from now falling to 23.39%, the CBRT survey showed on Monday. That is down from 24.56% in the June survey.

The 24-month inflation outlook edged down from 17.35% to 17.08%, the bank said.

On the currency front, participants revised their year-end dollar/lira forecast slightly upward to 43.72, from 43.57. The 12-month forecast for the exchange rate also rose from 47.04 to 47.70.

Meanwhile, gross domestic product (GDP) growth forecasts for 2025 and 2026 remained unchanged at 2.9% and 3.7%, respectively.

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