OPINION: Is Turkey Resilient to a Global Crisis?

Trump, after changing his mind countless times within a week, this time left the markets happy and content. Although China, Japan, and the EU have made no progress with the U.S. in mutual tariff reductions, Trump has already declared victory. Trump now lives entirely in a parallel universe. It wouldn’t be surprising if, within just a week, he changed his mind again and plunged the whole world into another panic attack. So if a new contagious panic attack — or in layman’s terms, a financial crisis — begins, is Turkey resilient to this shock, or would its reflection on us manifest as a recession and a new currency crisis?
This financial crisis bears resemblance to the 2013 “taper tantrum”
Let’s see what the IMF wrote back then:
In May 2013, when U.S. Federal Reserve Chairman Ben Bernanke started talking about when and how the Fed would reduce its bond-buying program, financial markets panicked. In this initial phase of sudden and systematic market volatility, emerging markets were adversely affected without distinction. Many developing countries’ currencies rapidly depreciated, external financing risk premiums rose, stock prices fell, and capital inflows slowed.
Fortunately, markets quickly began distinguishing between countries. Those with strong economic fundamentals were separated from those accumulating economic imbalances.
So, what can policymakers in emerging markets do during these cycles of capital flow ups and downs?
Our studies show that strong economic fundamentals and early action by policymakers play a critical role in risk management and increasing resilience to external shocks.
After the initial reactions, countries with the following characteristics faced lighter market pressures:
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Stronger economic fundamentals
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Financial systems with more domestic services, products, and liquid markets
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Fewer foreign investors in local bond markets
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Better growth prospects
Let’s engrave these features into our minds, as they will help answer whether the Turkish economy is resilient to a global financial crisis.
How Could Trump Trigger a Financial Crisis?
When the president of the so-called most powerful country in the world calls his central bank governor a loser, uses expressions like “they will kiss my ass” when negotiating tariffs, and claims there is no inflation in his country, it’s not an exaggeration to say he’s not acting rationally.
The reason I’m bringing this up is that Trump can change his mind on any global matter at any time. The Global Economic Policy Uncertainty Index rises hand-in-hand with the VIX. So let me state my thesis like this: IF Republicans don’t suffer a heavy defeat in the midterm elections, we are on the brink of a 4-year-long world of uncertainty. Global economic activity may stumble in the medium term, but financial markets can panic in the short term.
Now let’s look at the channels through which a financial crisis might unfold:
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A major bubble is inflating in gold. I wouldn’t be surprised if gold reaches $4000 per ounce soon. At some point, this bubble bursts — say, the U.S. dollar regains value — dragging down many overly-leveraged financial institutions into bankruptcy.
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As I mentioned above, there’s no sign that retaliations won’t take effect at the end of the 90-day period. This could shock markets.
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In the May FOMC meeting, the Fed will likely clearly state that rate cuts shouldn’t be expected for a long time. Since derivative markets are still pricing in 2–3 cuts, this announcement could rapidly push up the dollar and U.S. bond yields. Additionally, Trump could attack the Fed again.
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Trump’s budget, with its tax cuts, will easily pass through Congress. But neither party can bear the political cost of spending cuts. As a result, the U.S. budget deficit will swell, rapidly raising inflation expectations and government bond yields.
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Trump’s plan to devalue the dollar jointly with G3 central banks and convert foreign-held government bonds into 100-year maturities is still in motion — see the Mar-a-Lago Plan.
The common feature of all these “triggers” would be rising U.S. bond yields or a frozen market — meaning no buyers or sellers. Since all cross-border credit and bond issuances around the world are priced off the U.S. yield curve, the global credit market would freeze. Every country and indebted company operates on the assumption that maturing debts will be rolled over. In a scenario where principal payments must actually be made, defaults and bankruptcies would emerge.
In another alternative — one whose symptoms we already clearly see — the U.S. dollar’s status as a reserve currency and U.S. treasuries’ status as risk-free assets come under question. As money flees U.S. assets, bubbles begin to form wherever that money lands.
Is the Turkish Economy Resilient to a Financial Crisis?
Now, let’s assess Turkey’s resilience to external shocks stemming from Trump’s erratic behavior using the IMF’s criteria listed above:
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The current account deficit is very low; it’s expected to close this year below 2% of GDP. Due to the İmamoğlu crisis, there’s very little foreign positioning in the system.
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The budget deficit is a problem, but it’s at a level that can easily be financed domestically — meaning the Treasury could avoid bond issuance for a long time and still comfortably repay maturing external debt. Furthermore, our public debt-to-GDP ratio is among the lowest in emerging markets.
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With its recent rate hike decision, the CBRT (Central Bank of the Republic of Turkey) showed that it would react decisively to external shocks.
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On the downside, banks and the non-financial sector are heavily indebted. Below is a chart of the net FX liabilities of the non-financial sector (not shown in this translation).
Another advantage is that, during a financial crisis expected to last 1–3 months, maturing external debts can be easily covered by reserves or companies’ foreign currency holdings at home and abroad.
In Summary:
Unless a global financial panic coincides with a severe domestic political shock, the CBRT can continue a strong TL policy and partially cushion the economic damage from the shock.
Of course, a financial crisis or panic will impact the real economy. A major concern for us would be a disruption in tourist inflows. However, since tourists typically book in advance, even if the global economy suddenly stumbles, they would likely still travel this year rather than lose their prepaid vacations. If the financial panic aligns with the winter months — when 2026 bookings are made — then 2026 performance could take a hit.
The European economy is already hanging by a thread, and our second-largest export market, the Middle East and North Africa, has partially lost purchasing power due to low energy prices. So exports may decline, but estimating the magnitude is not easy. There are two reasons for this:
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In a global financial crisis scenario, energy prices would also fall. The reduction in Turkey’s energy bill may offset export losses in the external balance.
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While we see a high likelihood of financial shock, we don’t know how it will evolve. For example, if the dollar strengthens as a result — even if the shock originates in the U.S. — it could increase damage to the economy through various channels. On the other hand, if the euro/dollar jumps to 1.20, that would benefit tourism operators and low value-added exporters.
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We also can’t be too pessimistic about inflation. A global slowdown would likely create a disinflationary effect by reducing the dollar price of all imported goods. In a scenario where the whole world is shaken, fixed capital investment and household consumption would likely shrink due to uncertainty. These processes are theoretically disinflationary.
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On the other hand, keeping interest rates high during this financial crisis could lead to a 1–2 quarter slowdown in the economy through the credit channel.
In summary, compared to most other emerging markets, we are more resilient. A currency crisis is unlikely, but output and employment may take a medium-scale hit.