Turkish economic crisis (2018–current)

The Turkish economic crisis (Turkish: Türkiye ekonomik krizi), also known as Great Turkish Depression, is a financial and economic crisis in Turkey.[1] It is characterized by the Turkish lira (TRY) plunging in value, high inflation, rising borrowing costs, and correspondingly rising loan defaults. The crisis was caused by the Turkish economy's excessive current account deficit and large amounts of private foreign-currency denominated debt.[2][3][4][5][6]

Some analysts also stress the leveraging effects of the geopolitical frictions with the United States. Following the detention of American pastor Andrew Brunson, who was arrested on espionage charges after the failed 2016 Turkish coup d'état attempt, the Trump administration exerted pressure towards Turkey by imposing further sanctions. The economic sanctions therefore doubled the tariffs on Turkey, as imported steel rises up to 50% and on aluminum to 20%. As a result, Turkish steel was priced out of the US market, which previously amounted to 13% of Turkey's total steel exports.[7][8][9]

After a period of modest recovery in 2020 and early 2021 amid the COVID-19 pandemic, the Turkish lira plunged following the replacement of Central Bank chief Naci Ağbal with Şahap Kavcıoğlu,[10] who slashed interest rates from 19%[11] to 14%.[12] The lira lost 44% of its value in 2021 alone.[13][14][15] In 2023, however, Erdoğan began to follow orthodox banking methods under the guidance of Mehmet Şimşek and Hafize Gaye Erkan. The interest rate has stood at 50% since March 2024 upon the advice of Fatih Karahan, the governor of the central bank who succeeded Erkan.[16] This contributed to the decline of inflation, since as of November 2024, inflation is at 47.09%, down from its all-time high of 83%.[17]

More recently, political turmoil has further complicated the economic recovery. A series of anti-democratic crackdowns, including the high-profile detention of an Istanbul mayor and other opposition figures, have deepened market uncertainty and triggered sharp selloffs in equity markets.[18][19] These events have prompted both domestic and international policymakers to scramble: Finance Minister Mehmet Şimşek and central bank officials have engaged in calls with international investors,[20] while authorities have also taken measures such as banning short selling and relaxing buyback rules in an effort to stabilize the markets.[21] Meanwhile, rating agencies and international observers warn that the ongoing political repression may derail broader reform efforts and threaten Turkey's fragile economic stabilization.[22]

  1. ^ Michaelson, Ruth (16 May 2023). "Turkey's economic crisis expected to deepen after Erdoğan tops poll". The Guardian. ISSN 0261-3077. Retrieved 16 May 2023.
  2. ^ Cite error: The named reference e101 was invoked but never defined (see the help page).
  3. ^ Cite error: The named reference challenge was invoked but never defined (see the help page).
  4. ^ Cite error: The named reference crash was invoked but never defined (see the help page).
  5. ^ "Turkey's Lessons for Emerging Economies – Caixin Global". www.caixinglobal.com. Archived from the original on 28 April 2019. Retrieved 20 August 2018.
  6. ^ Cite error: The named reference :1 was invoked but never defined (see the help page).
  7. ^ "International Trade Administration" (PDF). August 2019.
  8. ^ Goujon, Reva (16 August 2018). "Making Sense of Turkey's Economic Crisis". Stratfor. Archived from the original on 16 August 2018.
  9. ^ Jack Ewing (17 August 2018). "Life in Turkey Now: Tough Talk, but Fears of Drug Shortages". New York Times. Archived from the original on 7 September 2018. Retrieved 30 January 2022.
  10. ^ Spicer, Jonathan Spicer; Erkoyun, Ezgi (22 March 2021). "Turkish lira plunges to near record low after Erdogan sacks central bank chief". Reuters. Archived from the original on 27 October 2021. Retrieved 25 October 2021.
  11. ^ Kidera, Momoko (21 October 2021). "Turkey cuts interest rates again despite calls for course change". Nikkei Asia. Archived from the original on 25 January 2022. Retrieved 22 October 2021.
  12. ^ "Turkish lira drops to new all-time low after rates slashed". CNBC. 22 October 2021. Archived from the original on 26 January 2022. Retrieved 24 October 2021.
  13. ^ Turak, Natasha (13 January 2022). Erdogan blames Turkey’s currency problems on ‘foreign financial tools’ as central bank reserves fall. Archived 10 May 2022 at the Wayback Machine CNBC.
  14. ^ Isil Sariyuce and Ivana Kottasová (23 June 2019). "Istanbul election rerun won by opposition, in blow to Erdogan". CNN. Archived from the original on 29 August 2019. Retrieved 20 August 2019.
  15. ^ Gall, Carlotta (23 June 2019). "Turkey's President Suffers Stinging Defeat in Istanbul Election Redo". The New York Times. ISSN 0362-4331. Archived from the original on 6 August 2019. Retrieved 20 August 2019.
  16. ^ Cite error: The named reference Interest rate unchanged was invoked but never defined (see the help page).
  17. ^ Cite error: The named reference November 2024 inflation was invoked but never defined (see the help page).
  18. ^ Turak, Natasha (24 March 2025). "Political and financial turmoil set to dominate Turkey, risking economic stabilization plans". CNBC. Retrieved 26 March 2025.
  19. ^ Buyuk, Hamdi Firat (19 March 2025). "Turkish Economy Takes Hit After Istanbul Mayor's Detention". Balkan Insight. Retrieved 26 March 2025.
  20. ^ Spicer, Jonathan; Jones, Marc; George, Libby (25 March 2025). "Turkey's Simsek seeks to calm investors, says market strains will be managed, sources say". Reuters. Retrieved 26 March 2025.
  21. ^ Rahman, Fareed. "Turkey bans short selling and eases buyback rules amid market rout". The National. Retrieved 26 March 2025.
  22. ^ "Turkey's anti-democratic crackdown is damaging its economy". The Economist. ISSN 0013-0613. Retrieved 26 March 2025.
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