The Turkish Economy After March 19: A Shift Toward Instability and Contraction

March 19, 2025 marked a turning point for Turkey, where political and economic fractures began to accelerate. The Minister of Finance and the Governor of the Central Bank of the Republic of Turkey (CBRT), who took office following the May 2023 elections, failed to achieve their goal of reducing inflation over nearly two years. According to TÜİK data, inflation stood at 38.21% in June 2023 and came in at 38.10% in March 2025.

The current strategy, which focuses merely on attracting international portfolio investments, has not succeeded even in that limited goal. After March 19, already fragile foundations began to erode further. Growing political uncertainty first hit financial markets and soon after, the real sector.

Following March 19, the CBRT raised the upper band of the interest rate corridor to control violent market fluctuations. This move aimed to send a short-term signal to market participants trying to price in increased political risk. Financial volatility subsided but this did not mean that confidence was restored.

The negative impact was felt primarily in the real sector. As market interest rates climbed, borrowing costs increased, and the already tight financing ground for the real economy shrank further. For the CBRT, which had been on a path of rate cuts, these developments meant a full reversal of monetary policy, possibly for an uncertain period.

The banking sector, prioritizing risk management in the face of mounting political and economic uncertainty, raised lending rates accordingly. Yet, the response didn’t stop at pricing risk, banks also significantly cut back on credit supply. As access to financing grew increasingly limited, many firms in the real sector turned to court protection under concordat provisions. This marked a weakening of the link between the financial system and the real economy. Production, investment, and employment processes came under pressure.

The surge in uncertainty and capital outflows forced the CBRT to intervene in markets using foreign exchange reserves. Since March 19, the CBRT has sold approximately $40 billion in foreign currency, as of the writing of this piece. These interventions have depleted reserves and made financial stability even more fragile.

In an economy reliant on short-term capital flows, reserves are not only a tool to defend the exchange rate but also a symbol of the credibility of economic management. Today, CBRT’s reserves have declined in both size and symbolic power.

Due to the import-dependent structure of production, cost-driven inflation has started to regain strength. The CBRT’s room to maneuver has narrowed, and markets have lost direction.

The post–March 19 economic environment has worsened the already pressing issue of concordat filings in the real sector. With credit access tightening, many firms now face serious cash flow challenges. For companies unable to secure funding from banks, bankruptcy filing has become the primary tool for survival.

Firms filing for bankruptcy affect not only their market stance, but also their suppliers, employees, and the broader sectors they have business with. The wave of filings has reached a level that threatens to cause major fractures in Turkey’s production capacity and labor market.

Companies in sectors like construction, textiles, retail, and automotive appear to be under severe strain. All of this points to the looming threat of a slowly emerging economic crisis.

The new tariff regime initiated by the United States has triggered another wave of tension in the global trade order. For Turkey, this creates growing risks in export markets and complicates the country’s efforts to adapt to global supply chain realignments. Of course, Turkey is not alone in this challenge.

The European Union’s potential response to the tariff war could force Turkish exporters to rethink their strategies. Yet, the current climate of political and economic instability at home severely limits Turkey’s ability to capitalize on external opportunities.

Turkey’s current economic crisis is not one that can be measured through short-term indicators. It must be understood through its structural foundations. Beyond inflation, exchange rates, interest rates, and growth figures, the weakening of governance capacity and public confidence lies at the heart of the crisis. March 19 stands at the heart of that weakening.

At this point, Turkey stands at a crossroads. One of the first scenarios that comes to mind is one in which a Turkey drifting further into authoritarianism continues to experience political uncertainty, dwindling reserves, and a weakening real economy. In such a case, political polarization deepens and macroeconomic balance collapses entirely.

The post–March 19 outlook is a product of political crisis. And the conditions facing the economy cannot be resolved solely through economic measures.

To rebuild public confidence, Turkey, which has lost even the most basic democratic principles, needs a determined and effective opposition. Otherwise, the crisis will deepen not only through economic indicators, but also through the erosion of the political sphere itself.

Let me do the closing with a question: In the face of this grim picture, where does recently held boycott stand?