Turkey’s Economy Faces Challenges Amidst Political Crisis

The ongoing political unrest in Turkey, stemming from the arrest and subsequent conviction of Istanbul Mayor İmamoğlu, has placed the country’s economy in a critical state. According to a report by the United Nations (published December 4), Turkey’s economy is projected to grow by 3.5% in 2024 and 2.6% in 2025 as necessary macroeconomic stabilization policies are expected to slow domestic demand. Conversely, the tightening of monetary policy and continued fiscal consolidation are anticipated to limit household consumption while investments and government spending will decelerate due to weakening reconstruction effects from the devastating February 2023 earthquake. However, exports are expected to increase due to improved business environments and ongoing international tourism recovery. The GDP growth rate is forecasted to rebound in 2026 at 4%, assuming stabilization policies have been mitigated. Structural reforms could further support these efforts for long-term economic stability. Turkey’s government has committed to reducing public sector deficits from 5.6% in 2023 to 2.6% in 2026. Annual GDP growth slowed from 5.3% in Q1 to 2.5% in Q2, with significant indicators showing potential further economic slowdowns. Inflation remains high despite reductions since September, primarily due to rising service and goods prices. The current account balance is expected to improve due to positive tourism prospects and increased natural gas production in Sakarya. Exports have shown relative stagnation partly due to regional tensions but are expected to strengthen the current account balance. The Central Bank maintains a strict monetary policy focused on price stability, keeping the benchmark interest rate at 50%. Inflation is forecasted to reach 30.7% in 2025 and decline to 17.2% in 2026. Recommendations include maintaining tight fiscal and monetary policies until inflation targets are met and implementing labor market reforms for flexibility. Despite challenges, Turkey’s private sector has demonstrated resilience amidst global supply chain shifts.