Turkey’s Export Competitiveness Plummets Below 2015 Levels: TÜSİAD Index Rings Alarm Bells

ISTANBUL, Turkey – Turkish industrial exporters are facing increasing headwinds as the nation’s cost-based competitiveness has declined significantly, falling below 2015 levels, according to a new report from the Turkish Industry and Business Association (TÜSİAD). The inaugural TÜSİAD Cost-Based Competitiveness Index (TÜSİAD-RGE), released in June 2025, reveals a worrying trend for the country’s vital manufacturing sector and its export-driven growth strategy.

Key Findings from Q1 2025: A Deep Dive into Declining Competitiveness

The TÜSİAD-RGE, developed in collaboration with Saha Analytics Consultancy A.Ş. and overseen by Prof. Dr. Hakan Kara, tracks the production costs of 10 key Turkish manufacturing sectors against 31 rival countries in major export markets. These sectors include automotive, textiles, chemicals, and machinery manufacturing. An index value above 100 indicates a cost advantage for Turkey.

The first quarter of 2025 paints a stark picture:

• Overall Decline: The TÜSİAD-RGE stood at 86.1, indicating that Turkey’s manufacturing sector is now, on average, less cost-competitive than its rivals. This figure represents an 8.9% year-on-year drop and marks the first time the index has fallen below its 2015 baseline.
• Cost Drivers: The primary culprits behind this erosion of competitiveness are:
  • Intermediate Goods Costs: Accounted for a 4.8-point reduction in the index, reflecting rising input prices for Turkish manufacturers.
  • Labor Costs: Contributed a 3.2-point decline, driven by increased wages that are not sufficiently offset by productivity gains.
  • Financing Costs: Added a 0.9-point burden, as high interest rates continue to strain corporate balance sheets.
• Limited Relief from Energy: While energy costs offered a minor reprieve, showing a limited decline, this was insufficient to counteract the broader pressures from other cost categories.

Expert Commentary: Why Turkey’s Export Engine is Sputtering

TÜSİAD’s new index confirms long-standing concerns among economists and business leaders about Turkey’s eroding cost advantage in global markets. The findings highlight several critical challenges:

• Inflationary Pressures: Persistent high inflation in Turkey is directly impacting intermediate goods and labor costs, making Turkish products more expensive compared to those from countries with lower inflation rates. This creates a significant hurdle for Turkish exporters trying to maintain price competitiveness.
• Productivity Gap: Although the TÜSİAD-RGE primarily focuses on costs, a separate productivity-adjusted index (TÜSİAD-RGEV) indicates that labor productivity gains in Turkey are not keeping pace with wage increases. This widening gap means businesses are paying more for less output efficiency, further undermining their competitive edge.
• High Financing Costs: The tight monetary policy implemented to combat inflation has resulted in elevated interest rates, making borrowing more expensive for Turkish companies. This directly impacts investment in new technologies, capacity expansion, and overall production, stifling long-term competitiveness, especially in capital-intensive industries.
• Global Supply Chain Dynamics: As global supply chains are reshaped, maintaining cost-effectiveness is paramount. Losing this advantage could mean Turkey struggles to attract new foreign direct investments (FDI) and may even see existing production shift to more cost-efficient locations.

Policy Implications: Navigating the Road Ahead for Turkish Industry

The stark results of the TÜSİAD-RGE serve as a critical warning for policymakers. To reverse this negative trend and bolster Turkey’s industrial competitiveness, immediate and structural reforms are imperative:

• Sustained Disinflation Efforts: A relentless focus on bringing down inflation is crucial to stabilize and reduce intermediate goods and labor costs. This will require continued prudent monetary and fiscal policies.
• Boosting Productivity: Investing in workforce upskilling, promoting digital transformation, and fostering innovation are essential to enhance labor productivity and ensure wage increases are backed by efficiency gains.
• Improving Access to Affordable Finance: Measures to ease financing costs for the real sector, particularly for SMEs, will be vital to encourage investment and maintain business viability.
• Strategic Industrial Policy: Policies aimed at reducing reliance on imported intermediate goods through local production incentives and diversifying energy sources can mitigate external cost shocks.
• Enhancing the Investment Climate: Creating a more predictable and stable business environment, alongside reforms that attract FDI, will be key to driving long-term growth and competitiveness.

The TÜSİAD-RGE will be updated quarterly, providing ongoing, data-driven insights into Turkey’s competitive landscape. Its findings will be critical for businesses and policymakers alike as they strive to ensure the future prosperity of the Turkish economy on the global stage.