2024 as a turning point

It may be useful to start 2025 with an assessment of 2024, to take stock of what happened, and point to the discussions and key dynamics that remain for the following year. In this column, I will provide a summary of the major economic developments in the world and in Turkey in 2024.

Global economy

2024 marked an important turning point for the global economy. The end of post-pandemic monetary tightening became clear with the simultaneous interest rate cuts by the central banks of the United States (US) and the European Union (EU). However, it is still unclear how global supply and value chains will be shaped in the post-pandemic period.

In particular, how the ongoing wars in the Middle East and Ukraine will end and how the economic and political relations between the US and China will take shape will shape the internationalization dynamics of capital. The development in this regard in 2024 was the EU taking solid steps towards shortening value chains as part of its strategy to distance itself from China. In the US, under the Biden administration, we saw the introduction of additional tariffs against China on strategic products.

These steps can be seen as a harbinger of a loss of momentum in the ideology and practice of 'free trade' and a reshaping of the balance of power in global economic relations. In other words, this signals a period in which protectionism and isolationism will be strengthened in the global economy, and globalization and free trade will begin to lose significance. 2024 was an important year in this sense.

In Europe, 2024 was characterized by economic stagnation in Germany and France, which led to changes in government. In particular, the debt brake in Germany, leading to chronic underinvestment, and the erosion of the competitiveness of German industry as a result of the cut-off of cheap natural gas from Russia show that the deepening problems for Germany in 2024 are not just temporary issues of one year, but developments with long-term implications. Similar to Germany, France has also seen economic difficulties shake the political center. In the summer of 2024, President Macron's risky decision to go to the election resulted in a situation in which the center-right and the center-left have been further eroded. In short, for Europe, 2024 was a year of serious bottlenecks in its economic model.

In the US, Trump is re-elected. The second Trump term has not yet begun, but one of the critical developments to be monitored in the coming year will be how much of the ambitious promises such as increasing tariffs in foreign trade policy and protecting domestic industry will be realized. What is certain, however, is that the issue of trade wars with China, which started under the first Trump administration and continued under the Biden administration, and the steps towards reversing the deindustrialization process will continue under the second Trump administration. What is critical for debates on the 'return of the state' or 'post-neoliberalism' is that the military-industrial complex is shaping the direction in both areas (trade wars and re-industrialization initiatives).

Turkish economy

For Turkey, 2024 can be summarized by three main developments. The first is the victory of the CHP in the local elections in 2024. One of the most important factors for the opposition to win the elections is that the government went to the elections under the Şimşek program. This program was one of the most important reasons for the government's loss of votes in 2023, as it caused the cost of living crisis, especially in big cities, to deepen and spread to Anatolia.

The second development that marked 2024 was the failure of the Central Bank of the Republic of Turkey to fight inflation. The economic administration implemented a disinflation program based on suppressing real wages on the one hand and appreciating the Turkish lira on the other. However, despite the suppression of real wages, the fall in international commodity and oil prices, and the appreciation of the Turkish lira in real terms, inflation has remained above 40 percent. This should unquestionably be considered a failure.

At the root of this failure lies the misidentification of the source of inflation (demand-driven). The unabated increase in imports of consumer goods indicates that there has been no reduction in the consumption of upper-income groups that benefit from high interest rates, a development that points to a further widening of income inequality. In short, in 2024, while the economic administration's power was enough for minimum wage earners, it was not enough to discipline the pricing behavior of large firms with price-setting power. This suggests that the root of the inflation failure lies in the fact that inflation is driven by profits.

The third important development of 2024 is the contraction of the economy in the second and third quarters. In other words, unlike previous years, 2024 should be seen as a year of economic crisis. In 2024, both the cost of the anti-inflation program and the cost of the economic crisis have been burdened by the working people. As we saw with the minimum wage increase in December, large sections of society ended 2024 with real wage losses.

To 2025

Looking ahead to 2025, there is great uncertainty in the global economy. The repercussions of Trump's economic policies raise the possibility that the US will pursue a new protectionist policy. Europe is raising calls for investment mobilization to revitalize growth. Especially after the elections in Germany, the government's strategies to overcome the debt brake are of critical importance. China, on the other hand, is on a path to rebalance its growth model by continuing its investments in certain sectors, even as it enters a period of slowing growth.

In Turkey, 2025 is likely to be a year of economic stagnation and confrontation with the crisis. Companies that managed to survive with high profitability in 2021-2023 will have difficulty overcoming the stagnation in 2025. For workers, the squeeze between unemployment and the cost of living will become one of the most important problems of 2025. The government will seek to turn its political gains in Syria into economic investments. In 2025 and beyond, Syria may see new industrial investments as well as infrastructure investments. However, for the success of such investments, the new power structure in Syria must first be clarified and political stability must be ensured.

In conclusion, economic developments in 2024 will shape global and local economic strategies in 2025. While protectionism and isolationism are on the rise worldwide, 2025 will be a year of economic stagnation in Turkey.