Turkish Economic Crisis (2018–current)

The Turkish economic crisis (), also known as Great Turkish Depression, is a financial and economic crisis in Turkey. 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.

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.

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, who slashed interest rates from 19% to 14%. The lira lost 44% of its value in 2021 alone. 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. 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%.

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. These events have prompted both domestic and international policymakers to scramble: Finance Minister Mehmet ÅžimÅŸek and central bank officials have engaged in calls with international investors, while authorities have also taken measures such as banning short selling and relaxing buyback rules in an effort to stabilize the markets. Meanwhile, rating agencies and international observers warn that the ongoing political repression may derail broader reform efforts and threaten Turkey's fragile economic stabilization.

Current account deficit and foreign-currency debt

A longstanding characteristic of Turkey's economy is a low savings rate. Since Recep Tayyip ErdoÄŸan assumed control of the government, Turkey has been running huge and growing current account deficits, $33.1 billion in 2016 and $47.3 billion in 2017, climbing to US$7.1 billion in the month of January 2018 with the rolling 12-month deficit rising to $51.6 billion, one of the largest current account deficits in the world. The economy has relied on capital inflows to fund private-sector excess, with Turkey's banks and big firms borrowing heavily, often in foreign currencies. Under these conditions, Turkey must find approximately $200 billion a year to fund its wide current account deficit and maturing debt, while being always at risk of inflows drying up; the state has gross foreign currency reserves of just $85 billion. The economic policy underlying these trends had increasingly been micro-managed by ErdoÄŸan since the election of his Justice and Development Party (AKP) in 2002, and strongly so since 2008, with a focus on the construction industry, state-awarded contracts and stimulus measures. Although, research and development expenditure of the country (% of GDP) and the government expenditure on education (% of GDP) are nearly doubled during AKP governments, the desired outcomes could not be achieved The motive for these policies have been described as ErdoÄŸan losing faith in Western-style capitalism since the 2008 financial crisis by the secretary general of the main Turkish business association, TUSIAD. Although not directly related in the conflict, the Turkish invasion of Afrin largely strained US-Turkish relations, and led to mass instability in Syria. This led to a global view of Turkey as an unnecessary aggressor.

Investment inflows had already been declining in the period leading up to the crisis, owing to ErdoÄŸan instigating political disagreements with countries that were major sources of such inflows (such as Germany, France, and the Netherlands). Following the 2016 coup attempt, the government seized the assets of those it stated were involved, even if their ties to the coup were tenuous. ErdoÄŸan has not taken seriously concerns that foreign companies investing in Turkey might be deterred by the country's political instability. Other factors include worries about the decreasing value of lira (TRY) which threatens to eat into investors' profit margins. Investment inflows have also declined because ErdoÄŸan's increasing authoritarianism has quelled free and factual reporting by financial analyst

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