Economist Onur Canakci: Turkey’s Deepening Structural Crisis and Mounting Uncertainty

Turkey’s economy has weathered numerous ups and downs during the nearly 22-year rule of the Justice and Development Party (AKP). But in recent years, the government’s short-termist economic strategies have led to a worsening of long-standing structural problems. As of May 2025, the latest economic data paint a concerning picture of systemic fragility and political mismanagement.

1. Inflation Spiral and the Collapse of Price Stability

According to the IMF’s latest report, Turkey is projected to have the highest inflation among G20 nations in 2025. Year-end inflation expectations exceed 31%, and due to rising wages, aggressive adjustments in administered prices, and exchange rate pass-through, this figure could surpass 33%. Years of misguided monetary policy—marked by persistently low interest rates followed by abrupt hikes—have failed to control inflation. Frequent policy U-turns by the Central Bank have eroded investor confidence.

2. Deteriorating External Balance and Depleting Reserves

As of February 2025, Turkey’s 12-month current account deficit reached $12.8 billion, while capital inflows remained insufficient. The persistently negative net errors and omissions balance and a $2.9 billion decline in reserves underscore the country’s vulnerability to external shocks. Net reserves excluding swaps have plummeted to -$51.8 billion—highlighting the government’s reliance on short-term fixes over long-term solutions. This suggests a continuation of the “hot money” policies widely criticized in the past.

3. Fiscal Slippage and Rising Interest Burden

By March 2025, Turkey’s budget deficit rose to TRY 261.5 billion—up from TRY 209 billion in March 2024. Interest expenditures more than doubled, adding significant strain to public finances. Ironically, the government’s years-long rhetoric about fighting the “interest lobby” now stands in stark contrast to the reality of soaring interest payments. The Medium-Term Program’s 3.1% budget deficit target has already been exceeded, with the actual figure nearing 4.9%, further eroding fiscal credibility.

4. Inequality and Early Signs of a Banking Crisis

A staggering 78% of bank deposits in Turkey belong to the wealthiest 1%, while 89% of the population holds less than TRY 10,000 in their accounts. This wealth gap starkly contradicts the government’s claim of spreading prosperity. Meanwhile, credit card debt has surged 53%, signaling that households are increasingly relying on debt to survive. This points to growing threats to both social justice and financial stability.

5. Misleading Employment Data and Industrial Contraction

Industrial production is on a downward trend both monthly and annually. The capacity utilization rate fell to 74.6%, the lowest level since March 2023. Business sentiment indicators and PMI data show declines in new orders and employment across the manufacturing sector. While official unemployment is reported at 7.9%, the broad underemployment rate stands at 28.8%, revealing the true extent of labor market slack. In this environment of precarious and low-quality jobs, official claims of “record employment” ring hollow.

6. Rising Investor Skepticism in Key Sectors

Hotel occupancy rates dropped to 26.7% in March 2025—marking the lowest level since the pandemic. Average housing sale times have climbed to 70 days, approaching the crisis levels seen in 2008. As Borsa Istanbul investors incur losses, gold and foreign currency have re-emerged as preferred safe havens. This shift highlights waning confidence in domestic financial markets.

7. Lack of Inclusive, Rational Economic Policy

The AKP’s economic management is divorced from long-term strategy, institutional independence, and transparency. Policy decisions remain heavily person-centric and erratic, deterring both domestic and foreign investors. Ongoing debates over Central Bank independence, currency volatility, missed inflation targets, and the widening trade deficit all point to a significant drift away from rational policymaking.

Conclusion: Turkey’s Chronic Crisis Is Now Structural

The challenges facing the Turkish economy are not just cyclical—they are deeply structural. The AKP’s reliance on populist policies and short-term fixes has failed to deliver sustainable prosperity or macroeconomic stability. Soaring inflation, a widening current account deficit, deepening income inequality, and a collapse in investor trust all underscore the inadequacy of the current economic management. The continued postponement of structural reforms not only worsens today’s crisis but sows the seeds for future turmoil.

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