Osman Şenkul
The deterioration in operating conditions in Turkey’s manufacturing sector continued through the end of the third quarter of 2025. With the ongoing slowdown in new orders and production, companies adopted a cautious approach to new hiring and purchasing. Inflationary pressures strengthened but remained moderate compared to historical averages. The headline indicator of the Istanbul Chamber of Industry Turkey Manufacturing Purchasing Managers’ Index (PMI), a single-digit, composite performance indicator designed to reflect the performance of the manufacturing industry, is derived from indicators of new orders, production, employment, supplier delivery times and input stocks. All figures measured above 50.0 indicate an overall improvement in the sector.
The headline PMI, which was 46.7 in September, fell slightly to 46.5 in October, reaching its lowest level in the last three months. Thus, the index signalled a continued deterioration in manufacturing sector activity. The slowdown in production reached its 19th month, with the decline being more pronounced compared to September. Feedback from survey participants pointed to weakening customer demand and a corresponding slowdown in new orders. Indeed, the decline in new orders continued in October, albeit at a relatively slower pace. The weakening was observed in both domestic demand and export markets, and thus new orders from abroad also slowed in October.
With the decline in new orders, manufacturers were reluctant to hire replacements for departing staff and purchase additional inputs. As a result, employment, purchasing activity and input stocks declined. The decline in input demand enabled suppliers to speed up deliveries for some firms. Delivery times shortened slightly, and supplier performance improved after two months of deterioration.
Input costs continued to rise sharply in October, driven by the depreciation of the Turkish lira increasing pressure on raw material prices. However, inflation lost some momentum compared to September. Similarly, the increase in final product prices slowed but remained robust.
The headline PMI, which stood at 46.5 in October, rose to 48.0 in November. Although the index remained below the threshold value of 50.0, it signalled the mildest deterioration in operating conditions since February. Similar to the headline data, the decline in manufacturing output was recorded at its slowest pace in the last nine months in November. However, firms continued to reduce production volumes due to the decline in new orders. New orders slowed due to weak demand, but this slowdown was the mildest since August. However, the contraction in new export orders became more pronounced. Some firms highlighted competitive pricing conditions internationally.
Industrial Production Index data published by the Turkish Statistical Institute also showed that in October, the mining and quarrying sector index increased by 1.2 per cent compared to the previous month, while the manufacturing sector index decreased by 0.9 per cent and the electricity, gas, steam and air conditioning production and distribution sector index decreased by 1.2 per cent. Accordingly, during the same period, intermediate goods production decreased by 0.6 per cent and durable consumer goods production decreased by 1.8 per cent. The production of non-durable consumer goods increased by 0.8 per cent, while energy production decreased by 1.0 per cent, capital goods production decreased by 2.3 per cent, low-tech product production decreased by 0.1 per cent, medium-low tech product production decreased by 1.5 per cent, and high-tech product production decreased by 7.8 per cent, while medium-high tech product production increased by 0.6 per cent.
TÜİK’s 24 October publication titled ‘Plant production is expected to decrease compared to the previous year’
in the presentation of the ‘Plant Production 2nd Estimate, 2025’ bulletin, “Production volumes are expected to decrease by 10.4 per cent for field crops such as cereals and other crop products (excluding fodder crops), 0.8 per cent for vegetables, and 30.4 per cent for fruits, beverages, and spice crops in the second estimate for 2025 compared to the previous year. Accordingly, it is projected that the approximate production quantities will be 67.1 million tonnes for cereals and other plant products, 33.3 million tonnes for vegetables, and 19.8 million tonnes for fruits, beverages and spice plants.” The following data was also listed regarding plant production forecasts:
“Cereal production volumes are expected to decrease by 12.4 per cent in 2025 compared to the previous year, reaching approximately 34.2 million tonnes. Compared to the previous year, wheat production is expected to decrease by 13.9 per cent to 17.9 million tonnes, barley production by 25.9 per cent to 6 million tonnes, rye production is expected to decrease by 20.9 per cent to approximately 203,000 tonnes, oat production is expected to decrease by 22.3 per cent to 303,000 tonnes, and maize production is expected to increase by 4.9 per cent to 8.5 million tonnes.
“In the dry legumes group, chickpea, dry bean and red lentil production is estimated to be 406,000 tonnes, 247,000 tonnes and 230,000 tonnes, respectively. Among tuber crops, potato production is estimated to decrease by 13.0 per cent compared to the previous year, reaching 6 million tonnes.
“Among oilseeds, soybean production is expected to decrease by 17.4 per cent to approximately 149,000 tonnes, while sunflower production is projected to decrease by 17.6 per cent to approximately 1.8 million tonnes. Sugar beet production is expected to decrease by 4.1 per cent to 21.5 million tonnes.
“It is estimated that the production volume of vegetable products will decrease by 0.8 per cent in 2025 compared to the previous year, reaching approximately 33.3 million tonnes. Among vegetable products, production is expected to increase by 8.3 per cent for watermelons, 2.6 per cent for dry onions, and 17.5 per cent for melons; while production is expected to decrease by 7.6 per cent for tomatoes, 6.3 per cent for bell peppers, and 8.3 per cent for fresh beans.
“Fruit, beverage and spice crop production is expected to decrease by 30.4 per cent in 2025 compared to the previous year, reaching approximately 19.8 million tonnes. Within the fruit group, production is forecast to decrease by 48.3 per cent for apples, 1.9 per cent for strawberries, 46.1 per cent for peaches, 44.1 per cent for nectarines, 70.6 per cent for cherries, and 24.5 per cent for grapes compared to the previous year.
“While a 7.1 per cent increase in production is expected for mandarins among citrus fruits, a 15.0 per cent decrease in oranges and a 34.8 per cent decrease in lemons are projected. Among hard-shelled fruits, production is expected to decrease by 38.5 per cent for hazelnuts, 38.1 per cent for walnuts, and 61.1 per cent for pistachios. Compared to last year, banana production is expected to decrease by 1.6 per cent, and olive production by 34.7 per cent.”
Both the reports containing data on ISO PMI developments and those containing production forecasts for industrial production and agricultural products were released consecutively over the past two months and featured as news in numerous publications. In short, although Treasury and Finance Minister Mehmet Şimşek attributed the failure to reduce inflation to an ‘unpredictable agricultural frost,’ the real danger is that we are facing ‘a serious decline in agricultural products and a serious contraction in industrial production.’
Prof. Dr. İzzettin Önder warned that ‘The economic impasse we are in is as interesting in its story as it is a complete impasse for the country’s future,’ and then pointed out that the problem is not only difficult to solve in the short term but also complicates forward-looking economic planning: ‘When we outline Turkey’s problems, primarily economic development, job creation and finding a permanent solution to the current account deficit, it becomes clear that we are facing a complete impasse in terms of achieving internal and external balance.’
In his article in 12punto, Prof. Dr. İzzettin Önder observes that ‘When we present Turkey’s problems as finding lasting solutions to economic development, job creation and the current account deficit, we see that we are faced with a complete impasse in terms of achieving internal and external balance.’
In short, our industrial structure does not, on average, operate at an advanced level of productivity. Indeed, the fundamental cause of the inflation we are experiencing and cannot seem to bring down is the issue of the industrial structure and the average production lag that spreads from there to the entire economy. Apart from reasons such as insufficient social capital and inadequate savings, the average labour lag also presents a serious problem in terms of inflation. This is why the government’s tight monetary policy and repressive methods partially suppress inflation but cannot prevent it. This is because the problem manifests itself more as supply inflation than demand inflation. However, while the cure for supply-side inflation requires long-term, planned programmes, the cure for demand-side inflation can save the day in terms of day-to-day politics by giving the appearance of being somewhat controlled through tight monetary policy and immediate suppression.
Another significant component of inflation in Turkey is food inflation, which places us among the ‘top 7’ globally, alongside Bolivia, Malawi, Iran, South Sudan, Argentina, and Haiti.
Regarding agricultural production, which is expected to decline significantly according to TÜİK data, Ali Ekber Yıldırım, a leading expert writer in this field, states, ‘The path to revitalising Turkey’s agriculture and food industry lies not in unplanned and reactive measures, but in strategic financing, export-focused support, and smart mechanisms that ensure market stability.’
In his article in the Ekonomim newspaper, Ali Ekber Yıldırım emphasised that Turkey presents the image of a country with high agricultural potential but a weakened agricultural value chain. He stated, “Unfortunately, the realities and figures on the ground confirm this. On the one hand, there is the necessity to export agricultural products, while on the other hand, there is high inflation, rising costs, difficulties in accessing finance, and a high interest rate environment.”
In his article, Ali Ekber Yıldırım highlights that Migros CEO Ömer Özgür Tort, who recently made headlines by stating that producers do not want to produce because they cannot make money, and that this has become a major threat to both the sector and the country, said, “If we continue at this pace, we may not be able to find products to sell in Turkey. Then we may have to include food among the items subject to import surges.”
In his article, Ali Ekber Yıldırım details how many food products, including lentils, are imported from Canada and other countries, stating, “When I discussed this on the programmes I participated in, Özgür Tort called me. He said his comments were aimed more at food manufacturers. He explained that he wanted to draw attention to the need for industrialists to place greater importance on agriculture and food, supporting production by investing in this area. He stated that, as in the defence industry and other areas, Turkey needs to be stronger in the food industry, and that this depends on agricultural production. He summarised by stating that support should be provided to production and producers by taking the food industry in developed countries as an example.
In his article, Ali Ekber Yıldırım also refers to the piece by Agricultural Economist and Food Engineer Dr. Murat Bayizit entitled ‘Turkish Agriculture: The Search for a Way Out of the Vicious Cycle,’ summarising that “On the one hand, the necessity to export agricultural products, and on the other, high inflation, rising costs, difficulties in accessing finance, and a high-interest environment; This situation is squeezing producers, industrialists and exporters all at once. This squeeze is the fundamental source of the vicious cycle that Turkish agriculture has entered today.”
Ali Ekber Yıldırım emphasises that today in Turkey, ‘financing is the biggest problem’ across the entire chain, from agricultural production to the food industry. He outlines these difficulties as follows: ‘Producers cannot borrow at high interest rates and cannot find the necessary capital for production; industrialists cannot invest, machine modernisation is being postponed, and exporters are struggling to find working capital.’
Ali Ekber Yıldırım also pointed out that the risk of products that do not yield a profit one year not being planted the following year is increasing, stating, “Price volatility disrupts production, production decreases, then prices rise again; then there is another supply surge… and the cycle continues. Turkey has been lost in this cycle for years. The fact that production is so uncertain every year makes the country dependent on imports. One of the most painful examples of this is that frozen food companies in Egypt have started going door to door to sell their products to bakeries and jam makers in Turkey.”
Ali Ekber Yıldırım also emphasises that Turkey’s domestic market is insufficient for many agricultural products. According to him, if exports are disrupted, it would be impossible to consume all domestically produced goods; because a halt in exports means ‘factories stopping raw material purchases, farmers being left with unsold produce, a decline in production the following year, and increased dependence on imports.’
Furthermore, in an environment without exports, domestic sales become unprofitable; unprofitability lowers quality, halts investment, and destroys the competitive power of companies. This is one of the biggest risks accelerating the collapse of the sector.
Therefore, the solution to the current problems lies not only in regulatory changes but also in support through financial instruments that produce direct results. The most critical step Turkey must take to revive the sector is to establish support mechanisms that produce direct impact, facilitating the processing and export of the farmer’s produce.
Referring to the system implemented in China, Ali Ekber Yıldırım states, ‘If China is showing aggressive growth in agricultural exports, the fundamental reason for this is product-based financing, freight support for exporters, and low-cost credit models that keep the chain from field to factory alive.’
Ali Ekber Yıldırım emphasised that the Agricultural Share Fund levied on agricultural imports is ‘a resource created to protect domestic producers by the very nature of the business,’ adding, ‘A specific portion of this fund is used to finance the procurement of raw materials necessary for exports, as low-cost credit for products that manufacturers will process and export, and for freight and logistics support. This not only protects domestic producers but also contributes to the competitiveness of the sector by reducing the cost of production.’ financing the supply of raw materials necessary for exports, providing low-cost credit for products that industrialists will process and export, and providing freight and logistics support, creates a leverage effect that simultaneously strengthens producers, industrialists and exporters. These supports are mechanisms that directly target the objective and yield quick results.”
Looking at the two most fundamental sectors of the economy, agriculture and industry, we can see that the negative repercussions of high costs due to high interest rates and exchange rates form the basis of serious problems in both sectors. As experts emphasise, providing comprehensive support to the agricultural sector, from the smallest producers to the industries that process agricultural products, and backing this with special funds, as is the case in almost all countries around the world, is of great importance.
The high level of exchange rates is, of course, fundamentally caused by high current account deficits. Consequently, as the cost of imported inputs rises, labour is suppressed in order to keep product prices low, thereby severely distorting income distribution. The balance of payments, one of the fundamental elements of the problem, consists of two main sections: the current account and the capital and financial account.
As we know, the current account encompasses a country’s foreign trade, consisting of exports and imports of goods and services, as well as the income balance generated by factors such as interest, profits, and wages. This account shows whether a country is earning or losing in its external economic relations, or whether it is sustaining these relations through borrowing. The capital and financial account, on the other hand, shows investments, loans and portfolio movements entering or leaving the country. For example, foreign investors setting up factories in Turkey, making portfolio investments or Turkish companies investing abroad are included in this item. The balance of these also determines the country’s financing capacity. Another important item is reserve assets. Increases or decreases in the Central Bank’s foreign exchange reserves constitute the final item in the balance of payments. This is because the current account deficit or surplus is financed in some way by foreign exchange reserves. Particularly in developing economies such as Turkey, the current account deficit problem is often closely linked to economic growth. This is because during periods of rapid growth, domestic demand increases, imports accelerate, and consequently the current account deficit grows.
The current account deficit should not always be viewed as a negative situation; however, how it is financed is the key determining factor. If the deficit is financed by long-term direct investments, it can create a sustainable structure as it increases the country’s production capacity. However, in a developing country such as Turkey, which has long since left production-oriented investments behind and focused on areas such as uncrossed bridges and unused motorways, if the deficit is covered by short-term borrowing or hot money inflows, the financial balance becomes highly fragile, and payments are attempted to be financed by new borrowing at high interest rates, thereby increasing the deficits.
Another noteworthy element in the payments balance is the net error and omission item. This item reflects foreign exchange inflows whose source cannot be fully determined. As discussed in the previous article, the size of this item in Turkey has reached remarkable proportions. This situation is considered a reflection of unrecorded capital movements or difficulties in the statistical classification of certain transactions. However, reducing this item in the long term is important for producing transparent data and is crucial for a sustainable financing structure. This transparency also paves the way for significant advantages, particularly in attracting foreign investment and bringing interest rates on external borrowing down to reasonable levels.
Achieving a healthy balance of payments structure is not only related to foreign trade policies but also to the integrity of macroeconomic balances. Controlling inflation, maintaining a stable exchange rate, reducing the import dependency of the production structure, and increasing energy efficiency are factors that strengthen this balance. In particular, encouraging technology-based exports through industrial policies can improve the current account balance in a sustainable manner in the long term; in other words, it can create conditions that prevent the production declines or inefficiency problems discussed above.
In other words, it is no longer just a matter of having a current account deficit or surplus; how this balance is achieved has become more important. Transformation in the production structure, increased energy efficiency and technological export capacity can ensure a permanent improvement in the balance of payments. In short, the balance of payments is not just a statistical table, but an indicator that takes the pulse of the economy and shows the health of the country’s foreign relations. Turkey’s fundamental goal should be to make this balance part of sustainable development.
Therefore, it is clear that a budget structure is needed to ensure that the resources required to support both key sectors are transferred to the relevant areas when necessary; however, looking at the budget proposal currently submitted to the Grand National Assembly of Turkey, we can see that this is not very feasible. First and foremost, we see that the highest proportional increase is in the interest expense item; accordingly, interest expenses will increase by 791.6 billion lira in 2026 compared to 2025, and total interest payments will reach 2.7 trillion TL, an increase of 40.6 per cent in one year. Thus, interest payments, which accounted for 13.2 per cent of the total budget in 2025, will increase by 1.3 points to 14.5 per cent in 2026.
Meanwhile, in 2025, direct taxes accounted for 33.8 per cent of the state’s tax revenues, while indirect taxes accounted for 65.15 per cent. The state collected only 868 billion lira of the 1.6 trillion lira in corporate tax it announced it would collect from companies at the beginning of the year, meaning that only 53 per cent of the commitment made to the public in the first 10 months was fulfilled. In the 2026 budget proposal, the share of indirect taxes will remain at 61.69 per cent, while the share of direct taxes will remain at 37.22 per cent. This means that the burden of indirect taxes such as VAT and excise duty will fall on the shoulders of workers. Furthermore, the budget will forego 3 trillion 597 billion lira in tax revenue, providing companies with a 19% tax advantage. Consequently, the means to access the resources needed to collect the support required to increase production, which is the real enemy of inflation, and to channel it to agriculture and industry will be blocked, leaving broad sections of the public to face inflation alone.