In a regional climate marked by rising geopolitical tensions, Turkey is once again at the heart of vulnerabilities inherent to emerging market economies.
The latest BNP Paribas analysis warns of a rapid deterioration in macroeconomic fundamentals, illustrated by the drop in foreign exchange reserves, which stood at $49 billion at end-March, versus $66 billion before the recent escalation and more than $80 billion by mid-2025.
Rise in the sovereign risk premium
This decline is part of a global flight-to-quality trend, but it is amplified by particular distrust of the Turkish economy. Portfolio outflows have accelerated, while the sovereign risk premium has surpassed 400 basis points. At the same time, the Turkish lira continues to weaken, with a depreciation of about 15% against the dollar since early 2025, prolonging a structural trend begun several years ago.
Inflation remains high, around 40% in early 2026 according to international estimates, which limits the effectiveness of monetary tightening and further weakens financial stability.
Beyond the financial shock, it is the real sector that sends the most troubling signals. The trade balance excluding energy has deteriorated since the second half of 2025, revealing structural tensions in competitiveness.
Competitiveness: a gradual decline
While the slowdown of the European Union – a key partner absorbing 43% of Turkish exports – partly explains this evolution, it is not sufficient to justify the decline in export volumes, estimated at more than 5% in the second half of 2025. This contraction signals a loss of market share, particularly against cheaper, more aggressive competitors.
The shift is all the more significant because Turkey had benefited, between 2019 and 2022, from a powerful competitive advantage linked to the depreciation of its currency. The euro-based unit labor cost in industry had fallen by nearly 30%, strongly supporting exports.
But that advantage has eroded. Repeated increases in the minimum wage between 2022 and 2024 pushed costs up, while the energy bill, approaching $90 billion in 2025, and the rising cost of imported inputs squeezed margins. Above all, rising interest rates increased financing costs, becoming a major fragility factor for companies.
An upgrade in production remains insufficient
In the face of these imbalances, Turkey is starting a shift in its production model. The share of exports of medium and high technology rose from 36% to 43% between 2021 and 2025, signaling a gradual repositioning.
However, this transformation remains incomplete. Traditional sectors continue to dominate the export apparatus, limiting the impact of this upgrade. By comparison, advanced industrial economies display much higher levels, revealing a persistent structural gap.
Today Turkey faces a complex equation: stabilizing its macroeconomic balances while accelerating its structural transformation. The erosion of reserves, monetary pressure, and loss of competitiveness signal the end of a model built on costs and capital flows.
In this context, the resilience often attributed to the Turkish economy appears more fragile than it seems. The challenge is no longer to withstand shocks, but to redefine the drivers of growth in a more demanding global environment.
