Turkiye's FX reserves

Planning for Turkiye’s economy will be complex, as it remains exposed to shocks heading into H2 2023

Turkey completed its elections on May 28, with President Recep Tayyip Erdogan maintaining the presidency after winning more than 52% of the votes. Two weeks prior, parliamentary elections resulted in the incumbent coalition of AKP and MHP maintaining a majority in parliament. The results signal more or less policy continuity, which unfortunately means that risks on the Turkish economy remain high. 

Turkey’s economy will remain difficult to monitor; official inflation figures will remain ineffective in reflecting domestic costs, and monetary policy will begin to normalize de facto in the market, but not in rhetoric and on the official central bank policy level. Executives will continue to operate in an increasingly opaque and complex operating environment. Meanwhile, lira depreciation and some populist spending ahead of the March 2024 elections will raise inflationary pressures toward late 2023. MNCs will begin to see some relief from improving tourism activity over the summer and a gradual uptick in business investments as access to credit improves. 


  • Turkey’s trade deficit expanded 42% YOY in April, with a 17% decline in exports alongside a mere 4% decline in imports the same month. 
  • Gross FX reserves of the Turkish central bank declined by US$ 24 billion between December 2022 and May 2023, a drop of almost 29%.
  • Industrial production has weakened significantly, with an 8% YOY decline in February, and was already fluctuating around 0% prior to the earthquake. The production figure remained negative at -0.1%YOY in March.
  • Retail sales shrank 6% MOM, but high inflation expectations have been pulling forward demand and keeping domestic demand high. Retail sales are trending above 20% YOY in volume indexes in Q1 2023. 
  • The budget deficit for the January-to-February period increased from a TRY 99.7 million surplus to TRY 202.8 million deficit. 
  • Real sector confidence indexes (retail, construction, and services) all declined from January 2023 to April 2023.
  • The Istanbul Chamber of Commerce shared a 77% average inflation figure for Q1 2023, while ENAGrup shared above 100% inflation for the same period.

Our View

The lira will continue to see depreciation pressures, and the government’s ability to intervene is weakening due to dwindling FX reserves. How the country’s monetary policy unfolds will dictate the level of lira volatility, the pace of recovery in the industrial and exporting sectors, and the pace of the return of business and consumer confidence in H2 2023. FrontierView expects the government to allow borrowing costs in the market to rise and the lira to depreciate gradually. Maintaining high growth will remain a priority; therefore, alongside domestic retail sales, the government will attempt to boost the weak industrial sector through better access to credit and a weaker lira. Meanwhile, public sector salaries, pensions,  subsidies, and consumer support from the government will have to fall in line with inflation ahead of the March 2024 elections. This means official inflation figures will decline toward the 30% range, while actual inflation is likely to ease toward 50% by the end of the year.

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