The title of an FT Big Read “Turkey’s economic woes catch up with Erdoğan” (https://on.ft.com/44B1WGK) could equally well be edited to "Erdogan’s policies have led to Turkey’s economic woes", with political turmoil leading to currency weakness and a drop in consumer and business confidence.
2025's primary flashpoint was the government's crackdown on the opposition. On March 19, Istanbul Mayor Ekrem İmamoğlu, President Erdoğan’s chief rival, was arrested on corruption and charges following the annulment of his university degree, a move widely seen as an attempt to bar him from future presidential races. This triggered the largest anti-government protests since 2013, involving hundreds of thousands across major cities.
Ekrem İmamoğlu has been charged with 142 offences including running a criminal organisation, bribery, embezzlement, money laundering, extortion and tender rigging.
Prison sentences could amount to 2,430 years in jail.
Economically, the political turmoil has led to several bouts of currency weakness, with a rundown of foreign exchange reserves and a central bank interest rate increase (subsequently reversed).
The latest data show the economy slowing in the third quarter (3.7% GDP growth after 4.9% in the second quarter). The IMF’s October forecast shows GDP growth at 3.5% and 3.7% in 2025 and 2026, respectively. Consensus forecasts are closer to 3% growth.
The finance minister, Mehmet Şimşek, claimed in June 2024 that a permanent decline in inflation was about to start. Inflation has fallen but to claims of permanence are, as yet, premature. Simsek sees the maintenance of fiscal discipline and high interest rates as required for lasting success. But caution is warranted given that Turkey has had two twin peaks in inflation in the twenty first century.
Private sector credit as a share of GDP has been trending lower since 2020, an encouraging sign that another credit-fuelled house price bubble and more general inflationary pressures can be avoided. But broad money growth is still too high (40% year-on-year) and the Turkish lira has remained weak. Inflationary risks are certainly not yet contained.
Of course, Erdoğan might abandon his reform programme. Finance Minister Şimşek and Fatih Karahan, a former New York Federal Reserve economist, could be replaced. A return to low interest rates and loose fiscal policies could mean a reversion to Turkey’s former, poor, policy settings with attendant inflationary risks and poor growth.