Turkey: The Fragile Anatomy of the Real Economy
- Arda Tunca
- 6 days ago
- 4 min read
The Turkish economy exhibits multidimensional fragility in production, employment, and public finance. These vulnerabilities are not limited to economic indicators alone. They also contradict the government’s frequently repeated economic policy discourse.
Three key indicators highlight the contradiction of the government: the weakening of production data, stagnation in employment, and the public sector’s interest burden surpassing its principal debt.
According to data from the Turkish Statistical Institute (TÜİK), industrial production is failing to recover. The pressure on industrial output stems from economic policy practices and major political ruptures.
The first chart below shows changes in industrial production on an annual basis. From April to November 2024, industrial output consistently declined. After November, a fragile recovery appeared in December and January. In February 2025, the recovery halted, and another decline was observed. In March, there was an increase. However, it must be emphasized that the chart does not yet reflect the major political turmoil that began on March 19, 2025.
Chart – 2 tracks monthly developments in industrial production. This chart reveals instability. The reason why monthly data may show increases during months of annual decline lies in “the logic of mathematics.” In plain terms, the data tell us that industrial production has not recovered and stabilized.
The government repeatedly emphasizes the importance of sustainability in production. It has long highlighted a transition to a “production-based economy.” Wasn’t The New Economy Program, introduced in 2021, presented as a new paradigm based on production, exports, and current account surplus, instead of high interest and hot money policies?
In 2022, the Ministry of Treasury and Finance reflected this approach in official reports, stating: “Turkey prioritizes sustainable growth based on production and investment.”
In the 2023 Medium-Term Program, the goal was defined as “ensuring a permanent improvement in the current account balance by increasing production capacity.”
For years, the government labeled interest as “the mother of all evil.” The idea that “interest is the cause, inflation the result” guided economic policy for a long time. Today, however, public finance data point to the exact opposite.
According to the 2025 Treasury financing program, TL 1.4 trillion was allocated for principal repayments and TL 1.9 trillion for interest payments, totaling TL 3.2 trillion. A government that defined interest as evil was not shy to plan interest payments to surpass principal payments.
Budget realization data show that from April 2024 to April 2025, budget interest expenses increased by 128.6%. This doesn’t mean interest rate hikes can’t be justified under runaway inflation. The data illustrate the absence of coherent, consistent, and sound policies born of the government’s contradictory actions.
Under these conditions, is it possible to speak of any program or targets? In such a climate of extreme uncertainty, scenario analysis becomes the only option. These scenarios are deeply intertwined with Turkey’s long-standing political problems.
According to TÜİK’s March 2025 labor market statistics, the unemployment rate fell 0.3 percentage points to 7.9% compared to the previous month. However, the underutilized labor rate reached 28.8%.
This rate reveals the depth of the unemployment problem in the labor market. Underutilized labor is one of the most comprehensive indicators of the labor market’s actual health. Even if the official unemployment rate is 7.9%, the fact that underutilized labor is at 28.8% shows the limited capacity of the economy to create employment and that a large portion of the population is working below their potential.
The term underutilized labor includes the unemployed (actively seeking and available to work), time-related underemployment (working fewer hours than desired, e.g., 20 hours per week but wanting more), and the potential labor force (not actively seeking due to discouragement or short-term personal reasons but available to work).
Turkey’s current economic outlook is a product of both macroeconomic instability and the clash between political discourse and economic reality. Policies driven by interest rate obsession have culminated in record interest payments.. The discourse of “employment-oriented growth” contradicts a private sector that cannot generate new jobs and rising unemployment. The rhetoric of a “production economy” does not match falling industrial output, declining capacity utilization, and weak investment appetite.
The Central Bank of the Republic of Turkey (CBRT) is attempting to manage an unsustainable monetary policy by suppressing the exchange rate via reserves. Instead of using the main tools of monetary policy, it clings to instruments from the 2021–2023 period. While the political cost of this helplessness is accepted as inevitable, the CBRT’s actions fall short of achieving even monetary stability.
In its Inflation Report dated May 22, 2025, the CBRT juxtaposes a graph of declining reserves (on the left hand-side) and public bond yields (on the right hand-side) across all maturities. Chart – 4 displays the erosion in reserves and the spike in borrowing costs for the public sector.
The picture reveals that Turkey’s economy is a managerial and mental deadlock. As economic problems demand urgent solutions, the absence of rational politicy choices makes resolution increasingly difficult.
In every crisis or bottleneck, the government resorted to artificial measures. These measures have weakened both households’ and firms’ capacity to survive with their own management capabilities. Trying to breathe through artificial methods has led to structural deterioration in the industrial sector. Short-termist and unproductive industry structure incapable of strategic planning have emerged as a behavioral pattern. Now, as old ideas resurface, the return of the Credit Guarantee Fund appears imminent.
While globally significant developments unfold, Turkey’s industry continues with a defunct structure barely sustained by artificial respiration. In the long run, the real loser will be the youth trapped in the country’s underutilized labor pool.
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