Prof. Esfender Korkmaz Warns of Sharp Economic Slowdown Risk in Türkiye

Economist Prof. Esfender Korkmaz warns that Türkiye may be facing not only persistent inflation but also a risk of rapid economic contraction, citing early warning signals from the textile sector—historically one of the first industries to reflect broader downturns.

Author Prof Esfender Korkmaz

Textile Sector Signals Early Warning

Korkmaz highlights that the textile industry has traditionally acted as a leading indicator of economic stress in Türkiye.

Ahead of the 2009 global financial crisis, the sector was among the first to show signs of distress, with weakening demand and falling exports. During the crisis:

• Türkiye’s economy contracted by 4.8%
• Manufacturing shrank by 7.3%
• Textile exports declined by 19% year-on-year

Because textiles are labor-intensive and highly sensitive to both domestic demand and exports, downturns tend to appear there earlier and more sharply.

Why Textiles React First

The sector’s structure makes it particularly vulnerable:

• High employment intensity → layoffs happen quickly during downturns
• Demand elasticity → clothing purchases can easily be postponed
• Export sensitivity → global demand shocks hit immediately
• Fast inventory cycles → falling orders quickly signal broader slowdown

Korkmaz notes that a drop in textile orders often precedes a wider industrial contraction.

Shift Toward Egypt Reflects Structural Weakness

In recent years, many textile producers have shifted operations to Egypt, driven by several structural advantages:

• Faster access to European and U.S. markets
• Improved logistics and port infrastructure
• Preferential access to the U.S. market under QIZ agreements
• Lower labor costs compared to Türkiye

Meanwhile, Türkiye’s textile export share has declined:

• 2021: 6.46% of total exports
• 2025: 4.17%

Strong Lira and High Interest Rates Hurt Competitiveness

Korkmaz attributes part of the sector’s decline to macroeconomic policy.

Over the past two years:

• The Central Bank and banks have attracted foreign currency through high interest rates
• The Turkish lira has appreciated in real terms

This has reduced Türkiye’s export competitiveness, making it harder for manufacturers to compete internationally.

Domestic Demand Becomes Increasingly Uneven

The economist also points to a dual structure in domestic demand:

• High-income groups continue to spend, even on luxury goods
• Lower-income groups face declining purchasing power

As a result:

• Mass-market production is shrinking
• High-end production continues

This imbalance reflects deeper structural inequalities in the economy.

Job Losses and Business Closures Mount

Industry data suggests mounting pressure:

• 11,905 jobs lost in the past year
• 835 businesses closed in the apparel sector

Despite these developments, Korkmaz notes a lack of clear response from economic policymakers.

Lessons from 2009

Korkmaz argues that Türkiye’s policy framework has long relied on:

• Short-term capital inflows
• External borrowing

This approach left the economy vulnerable during the 2009 crisis, when Türkiye contracted more sharply than many peers:

• Global average growth: -0.1%
• Emerging markets: +2.8%
• U.S.: -2.8%
• Türkiye: -4.8%

Risk of Combined Inflation and Contraction

Looking ahead, Korkmaz warns that current conditions are even more fragile than in past crises.

According to his assessment:

• Negative economic pressures are accumulating across multiple sectors
• Early signals from industry—especially textiles—should be taken seriously

He concludes that Türkiye now faces a dual risk:

Not only persistent inflation, but also the possibility of a rapid economic slowdown or contraction.