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Turkish economic and political volatility

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2026-10-24 11:13 UTC → 2026-10-27 05:31 UTC · added ~~removed~~

Turkey continues to navigate significant economic and political volatility. While previous years were marked by unconventional interest rate cuts, recent efforts have focused on stabilizing the economy through higher rates. However, analysts and industry leaders warn of a risk of ‘early deindustrialization’ as the economy shifts toward services. Data from the Turkish Statistical Institute (TÜİK) shows the manufacturing sector's share of GDP fell from 22.12% to 15.58% over five years, while the services sector surpassed 60% in 2026. The industrial sector faces severe pressure from high inflation, rising energy costs, and high interest rates. Mustafa Gültepe, President of the Turkish Exporters Assembly (TİM), noted that energy prices rose 15-fold since 2019, causing exporters to lose market share to competitors like Poland and Romania. Political figures have warned of a potential industrial collapse, citing shrinking domestic demand and a decline in capacity utilization, particularly in the machinery sector. Financial distress is further evidenced by 1,240 concordat applications filed in the first half of 2026. Political and institutional concerns persist. Sefa Yılmaz, President of the Izmir Bar Association, stated the country is “no longer functioning as a state governed by the rule of law,” citing institutional decay. Economically, high commercial loan rates—reaching approximately 48.9% in mid-July—are hindering SMEs. ~~Amidst these challenges, some political actors, such as HÜDA PAR, have called for an ‘interest-free Turkey’ model~~ As of late October 2026, the Central Bank has begun a slight easing, reducing the policy interest rate from 37 percent to ~~prioritize production over capital.~~ 36 percent due to weakening domestic demand. However, the bank maintains a tight monetary stance to support disinflation. A critical tension remains: while inflation is approaching a 30 percent psychological threshold, Turkey’s average annual inflation between 2019 and 2025 was approximately 38 percent, significantly higher than competitors who maintained rates below 8 percent. Experts warn that if inflation expectations remain high, the downward trend may stall.

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