Turkey’s High Interest Rate Era Deepens Strain on Manufacturing and Exports

Turkey’s prolonged period of tight monetary policy continues to weigh heavily on its manufacturing base, despite the Central Bank’s recent pivot toward easing. While last week’s 100-basis-point interest rate cut lowered the policy rate to 37%, exporters warn that the damage inflicted over the past three years has not yet healed, particularly on production capacity and employment.

The tightening cycle, launched by the Central Bank of the Republic of Turkey (CBRT) in 2023 and sustained throughout 2024 with the policy rate held at 50%, was designed to curb runaway inflation and restore macroeconomic credibility. However, industry representatives argue that the program’s extended duration has placed disproportionate pressure on the real economy, especially on export-oriented manufacturers.

According to Reuters, Turkey Exporters Assembly (TİM) Chairman Mustafa Gültepe has voiced growing concern that the current economic framework has lasted longer than the production sector can reasonably absorb. He emphasized that while financial stabilization has made progress, the cost has been steep for manufacturers operating under high financing expenses and eroding competitiveness.

Manufacturing Employment Sees Sharp Decline

One of the most striking consequences of prolonged tight monetary conditions has been the contraction in manufacturing employment. Gültepe underscored that job losses have accelerated across industrial segments, pointing to data that illustrates the scale of the impact.

“Program çok uzun sürdü. Üç yılın sonunda geldiğimiz noktada üretim tarafında sorunlar var. İmalat sanayinde son üç yılda yaklaşık 560 bin kişilik istihdam kaybı yaşandı,” Gültepe said.

This loss of approximately 560,000 manufacturing jobs over three years signals not only cyclical weakness but also structural stress within Turkey’s production ecosystem. Sectors that rely heavily on labor rather than capital have been hit hardest, as elevated borrowing costs restrict working capital and limit firms’ ability to maintain payrolls.

Labor-Intensive Sectors Under Continued Pressure

Gültepe highlighted that ready-to-wear, leather goods, and furniture manufacturing remain particularly vulnerable. These labor-intensive industries, which form a critical pillar of Turkey’s export profile, are expected to struggle throughout the year as high financing costs and subdued global demand intersect.

Even with the recent interest rate cut, exporters argue that real sector conditions have not materially improved. Many firms continue to operate with thin margins, face difficulty accessing affordable credit, and compete with lower-cost producers in global markets.

Export Target Faces Growing Uncertainty

The government’s $282 billion export target for the year is increasingly viewed as ambitious under current conditions. Loss of price competitiveness, sector-specific weakness, and the lingering effects of high interest rates have collectively placed the target at risk.

Although Turkey’s disinflation trajectory has improved, exporters say cost pressures remain stubbornly high. Annual inflation, which peaked at 75.45% in 2024, declined to 30.9% by December following tighter monetary and fiscal measures. Yet exporters note that reductions in inflation have not translated into equivalent relief on the cost side, particularly for labor, energy, and financing.

Gültepe cautioned that a genuine recovery in exports is unlikely before next year. While headline export figures may show growth in 2025, he stressed that such gains would not necessarily be broad-based or evenly distributed across sectors.

According to Gültepe, many companies are struggling to secure new foreign markets, and export growth remains concentrated among a limited group of firms rather than spreading across the industrial base.

Talks With the Central Bank on Exporter Support

In response to mounting challenges, TİM has intensified dialogue with the Central Bank to strengthen existing support mechanisms. Gültepe confirmed that discussions are ongoing regarding enhancements to foreign-exchange conversion incentives offered to exporters.

Currently, exporters receive a 3% conversion support when they convert foreign-currency revenues into Turkish lira. Gültepe said increasing this rate and renewing applicable limits have been raised directly with CBRT officials as part of broader efforts to stabilize exporter cash flows.

Beyond currency conversion incentives, TİM is calling for a more comprehensive support framework. This includes employment incentives, minimum wage support, and more effective financing tools tailored to exporters’ operational realities.

Gültepe concluded that without stronger, more targeted measures, maintaining export momentum while preserving employment will become increasingly difficult in an environment where monetary normalization has yet to fully reach the real economy.