Triple squeeze in the Turkish economy: Inflation, funding crisis, and global risks

The Turkish economy is facing a triple squeeze process caused by high inflation, a funding crisis in financial markets, and global financial shocks, while MSCI has issued a warning to review Turkey's market classification.

The Turkish economy has been struggling with the challenges of the economic program implemented since 2023. While high inflation and fiscal tightening policies have led to a slowdown in domestic demand, the crisis in funding markets has negatively affected the cash flow of households and companies. According to TURKSTAT data, the Consumer Confidence Index fell by 7.7 percent in October.

The funding crisis, which complicates cash management for companies in financial markets, has also increased vulnerabilities in the private sector bond and bill market. On the global front, geopolitical risks and the interest rate policies of central banks in developed countries are making it difficult for Turkey to access financing. Exporters are struggling due to both the contraction in domestic demand and the loss of competitiveness in foreign markets.

In October, MSCI froze changes to Turkish stock indices and warned that the market classification could be downgraded if improvements are not made regarding market transparency and audit capacity. Turkey is expected to implement reforms in this area by June 2027. Meanwhile, the CBRT has implemented a package of measures for firms experiencing liquidity tightness by exempting private sector debt instruments from credit growth limits.