Turkish Economy Faces Mounting Challenges: Expert Warns of Inflation and Bankruptcies

Istanbul, Turkey – The Turkish economy is facing a confluence of challenges, including uncontrolled inflation, soaring interest rates, rising unemployment, and a wave of business closures, according to Dr. Şenol Babuşcu, former Assistant General Manager of Ziraat Bank. His warnings highlight the increasing strain on Turkish citizens and businesses alike. the situation is further complicated by a preference for financial gains over productive investments, creating an unsustainable economic surroundings.

Rising Deposit Rates Hinder Investment

The closure of workplaces in major cities like Istanbul and İzmir is becoming increasingly noticeable. Despite this, high deposit interest rates are overshadowing investment decisions. With interest rates reaching as high as 50%, investors are incentivized to deposit their money in banks rather than invest in establishing or expanding businesses. For example, an investment of 10 million TL could yield 16 million TL in a year through deposit interest. This preference for financial gain over productive economic activity is unsustainable in the long run.

Did You Know? Turkey’s annual inflation rate reached 73.5% in May 2024, according to Trading Economics, highlighting the severity of the inflationary pressures on the economy [[1]].

Bankruptcy Wave Sweeps Through Companies

The increasing cost of credit is severely impacting companies’ cash flow, leading to a surge in applications for concordat (a form of bankruptcy protection). In the first five months of 2025, 2,235 companies applied for concordat. This increase affects not only the companies directly involved but also all actors in their supply chains. The rise in bankruptcies signals a broader economic downturn affecting various sectors.

Pro Tip: Businesses should focus on efficient cash flow management and explore choice financing options to mitigate the impact of high credit costs.

Central Bank Reserve Concerns

Dr. Babuşcu also pointed out that inconsistent economic management has damaged market confidence, noting a loss of over $50 billion in Central Bank reserves as March 19. The 10-point increase in deposit and loan interest rates has placed significant pressure on both individuals and enterprises.

Turkish Lira (TRY) Forecast and Unemployment

Looking ahead to the end of 2025, Dr. Babuşcu forecasts the USD/TRY exchange rate to reach 44-46. He also anticipates that economic growth will remain limited to around 3%, while unemployment continues to rise. The policy interest rate is expected to remain around 35% by the end of the year.

Inflation’s impact on purchasing Power

High inflation continues to erode the purchasing power of households, particularly with increases in essential items such as food, energy, rent, and education. Wage increases are failing to keep pace with these price increases, leading to a deepening cost-of-living crisis for many Turkish citizens. According to a report by the World Bank, rising food prices disproportionately affect low-income households, exacerbating inequality [[2]].

Historical Context of Turkish Economic Challenges

Turkey’s economy has experienced periods of significant growth, averaging 5.8% annual GDP growth between 2002 and 2021 [[4]]. However, the country has also faced economic crises, including the ongoing Turkish economic crisis that began in 2018, characterized by a plunging lira, high inflation, and rising borrowing costs [[5]]. Understanding this historical context is crucial for assessing the current challenges and potential future outcomes.

Disclaimer: This article provides general data about the Turkish economy and should not be considered financial advice. Consult with a qualified financial advisor for personalized guidance.

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