From Crisis to Comeback? Unpacking Turkey’s Economic Future

By Chetna Gill

Cover Image Attribute: The file photo of Grand Bazaar in Istanbul, Turkey. / Source: Dominic Arizona Bonuccelli

Turkey’s economy has long been a subject of fascination and frustration, a rollercoaster of booms and busts reflecting its strategic promise and persistent vulnerabilities. In recent years, however, whispers of a revival have begun to circulate among analysts, policymakers, and citizens alike. After a punishing period of currency depreciation, runaway inflation, and international skepticism, Turkey appears to be clawing its way back toward stability—and perhaps even prosperity. But is this resurgence real, or merely a mirage shimmering over a landscape of unresolved challenges? A balanced look at Turkey’s economic trajectory reveals a nation at a crossroads, where bold reforms and geopolitical advantages wrestle with entrenched structural weaknesses and political uncertainties.
Let’s start with the good news. Turkey’s economy is showing signs of life after a brutal stretch. Inflation, which soared to a staggering 85% in late 2022, has begun to cool, dropping to around 42.1% by early 2025—a figure that’s still eye-watering by global standards but a marked improvement nonetheless. This shift owes much to a dramatic pivot in monetary policy. After years of unorthodox approaches under President Recep Tayyip Erdoğan—most notably his insistence on slashing interest rates in the face of spiraling prices—Turkey’s central bank has embraced a more conventional stance. Since mid-2023, interest rates have climbed sharply, signaling a willingness to tame inflation even at the cost of short-term pain. The lira, battered for years, has stabilized somewhat, giving businesses and households a breather from the chaos of constant devaluation. Exports, too, have surged, fueled by a weaker currency that makes Turkish goods competitive on global markets. From textiles to automotive parts, Turkey’s manufacturing sector is finding its footing, with Europe and the Middle East as eager buyers.
This export boom isn’t just a fluke—it’s a reminder of Turkey’s inherent strengths. Straddling Europe and Asia, the country boasts a prime geographic position that’s the envy of many. Its young, dynamic workforce, numbering over 30 million, offers a labor pool that’s both cost-effective and increasingly skilled. Infrastructure investments, from high-speed rail to gleaming new airports, have bolstered connectivity, making Turkey a viable hub for trade and logistics. Add to that a burgeoning tech scene—Istanbul is quietly becoming a startup magnet—and you’ve got the makings of an economy that could punch above its weight. The government has leaned into this narrative, touting ambitious projects like the Istanbul Canal and positioning Turkey as a linchpin in energy corridors, especially as Europe seeks alternatives to Russian gas. If these pieces fall into place, Turkey could ride a wave of growth that lifts millions out of economic hardship.
Yet optimism must be tempered with reality. Turkey’s revival is fragile, and its economic scars run deep. High inflation may be easing, but it’s still a crushing burden for ordinary Turks. Wages haven’t kept pace, eroding purchasing power and fueling discontent. Unemployment hovers around 10%, with youth joblessness even higher, a ticking time bomb in a country where nearly half the population is under 30. Debt, both public and private, looms large. Turkish firms borrowed heavily in foreign currencies during the good years, and with the lira’s value still shaky, repaying those loans is a Herculean task. The government’s fiscal position isn’t much prettier—decades of populist spending have left little cushion for shocks. A sudden spike in global interest rates or a geopolitical flare-up could easily derail the recovery.
However, it’s crucial to acknowledge the elephant in the room: politics. President Erdoğan’s long-standing grip on power, now in its third decade, has brought a certain level of stability, but it has also fostered an environment where economic decisions often bend to political will. While the central bank’s newfound independence is a positive sign, there are lingering doubts about its ability to maintain this stance if Erdoğan, who once famously referred to high interest rates as “the mother and father of all evil,” reverts to his old ways. Allegations of cronyism and corruption have plagued his administration, undermining investor confidence. Foreign direct investment, once a lifeline for Turkey, has dwindled, with many wary of opaque regulations and a judiciary perceived as being under the ruling party's influence. The opposition, buoyed by municipal victories in 2019, presents an alternative vision, but internal conflicts and a lack of unity weaken its ability to challenge the status quo. Until Turkey resolves this tension between economic pragmatism and political expediency, its revival will remain on shaky ground.
Geopolitics adds another layer of complexity. Turkey’s assertiveness—think military ventures in Syria, Libya, and the Eastern Mediterranean—has won it leverage but also enemies. Sanctions, particularly core Countering America’s Adversaries Through Sanctions Act (CAATSA) sanctions from 2020 over Turkey’s purchase of Russian S-400 systems, linger like storm clouds. Yet this same boldness has opened doors. Turkey’s drone industry, a standout success, exemplifies how defense and economic ambitions can align, with exports now reaching dozens of countries. Mediation efforts in conflicts like Ukraine-Russia have burnished its diplomatic credentials, potentially unlocking trade opportunities. Still, walking this tightrope demands finesse, and missteps could turn allies into adversaries overnight.
What’s clear is that Turkey’s economic fate hinges on execution. The government’s economic reforms, advanced throughout 2024 under Finance Minister Mehmet Şimşek, aim to boost competitiveness, streamline bureaucracy, and attract investment. Early results are promising—foreign portfolio inflows ticked up last year—but implementation remains critical. Vague promises won’t cut it; tangible progress on rule of law, transparency, and education is non-negotiable if Turkey wants to join the ranks of middle-income success stories like South Korea rather than stagnate like Argentina. The private sector, too, must step up. Turkish businesses have shown resilience, but many remain too reliant on state contracts or cheap labor rather than innovation. A cultural shift toward entrepreneurship and risk-taking could turbocharge the revival.
For the average Turk, the stakes couldn’t be higher. Years of economic turmoil have bred cynicism, yet there’s a flicker of hope in the air. Shopkeepers in Ankara report cautious optimism as prices stabilize; factory workers in Izmir cheer new export deals. But trust is thin, and patience thinner. If the government delivers jobs, growth, and a lira that holds its value, it could inspire a renewed confidence in Turkey's economic future. If it falters, the backlash—economic and political—could be fierce.
Turkey’s economic revival is neither a done deal nor a lost cause. It’s a high-wire act, balancing structural reforms with political realities, global headwinds with regional ambitions. The ingredients are there: a strategic location, a capable workforce, and a moment of policy clarity. Yet the pitfalls are just as real: debt, governance woes, and an unpredictable world stage. Whether Turkey soars or stumbles depends on choices made now—not just by Erdoğan and his circle, but by a society eager to reclaim its potential. For a nation that’s weathered empires and upheavals, this chapter could be its most defining yet. 

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