Osman Şenkul
Economic growth is similar to alternating current; the highest point of the ‘+’ regions in the electrical cycle is defined as the ‘peak’ in the economy, whilst the highest point of the ‘–’ regions is defined as the ‘trough’. However, these identifiable ‘peak-trough’ points – in other words, the periods when the economy is at its most vibrant and those when it is at its most stagnant – can only be reliably measured going back a few centuries from the present day; earlier periods can only be reconstructed using estimated data.
Furthermore, another fact revealed by these measurements is that as the division of labour and economic life have become more complex worldwide—that is, as we move closer to the present day—the frequency of ‘peak-trough’ cycles in the global economy has increased. Whilst this frequency has recently fallen to a span of a few decades, for the earliest periods of history it can be measured at intervals of 1,000–1,500 years, and subsequently at intervals of 100–150 years.
Historical records and accounts indicate that the world economy’s first peak was also reached following an ascent lasting approximately 1,000–1,500 years. The economic revival that began to take shape in Mesopotamia around 4,000–4,500 BC reached its zenith during the Sumerian period in the 3rd millennium BC.
The driving force behind this revival was, just as it is today, the rapid increase in the production of household items such as plates, pots, ovens, food storage containers and barrels, as well as agricultural tools such as ploughs and hoes. Archaeological finds reveal that the first appearance and widespread use of all these goods coincided with the same periods.
The extremely rapid pace of economic growth also had an impact on productivity during the same period. Agriculture, which had previously been practised in the most primitive manner, began to be carried out in an increasingly efficient way as a result of accumulated knowledge based on experience and observation.
For the first time, the seasons were measured in a manner that could be considered quite scientific by the standards of the time, enabling farming to be carried out at the right time. Cultivated land was now deliberately left fallow. The first measures to counter long, dry summers were also implemented by the Sumerians and the neighbouring peoples. Long canals were dug from the rivers to the fields. The first water dams were also built during this period to deliver water to fields situated on higher ground. It was precisely during this time—marking the very beginning of human history and having started from scratch—that humanity achieved its “greatest economic leap”, following the attainment of equal and universal freedom for all.
This significant revival of economic life also triggered a surge in the rate of population growth. Partly due to the fact that wars were not as frequent as in later periods, population growth reached a rapid pace. This first major economic revival—during which production rose significantly to meet the needs of the growing population on a broader scale, whilst increases in production also expanded beyond agriculture to support general economic growth—continued until the era of the great wars of conquest.
Looking back from today at the 3000s BC, when these significant developments took place, one of the phenomena arising from the economic revival was the population growth rate, which rose to substantial levels. In contrast, whilst the population growth rate accelerated as a result of the economic revival that took place some 50 centuries ago, we are now witnessing, particularly in Turkey, a significant decline in this rate.
As President Recep Tayyip Erdoğan also emphasised in his speech at the ‘Family and Population 10-Year Vision Launch Programme’ on 2 May, the total fertility rate in Turkey has been falling since 2014 and has now dropped below 2.1, the replacement level. Consequently, the annual population growth rate in Turkey has slowed to around 5 per thousand, and these developments have brought about lasting demographic transformations such as ‘an increase in the median age and an ageing society’. Accordingly, it is estimated that this rate, which fell to 1.48 in 2024, will decline further in 2025. In other words, whilst 1.035 million babies were born in Turkey in 2014, this figure fell below 1 million in 2023.
Of course, underlying all these significant developments are the economic contractions experienced in Turkey; consequently, data is also emerging indicating that economic growth has been significantly curbed. According to figures from İş Bankası’s Economic Research Department, in the first quarter of 2026, the economy grew by a very modest 0.1 per cent on a quarterly basis. In the International Monetary Fund’s (IMF) July 2026 report, Turkey’s growth forecast for 2026 was revised downwards from 3.4 per cent to 2.9 per cent, whilst Organisation for Economic Co-operation and Development (OECD) figures also saw the forecast revised downwards from 3.3 per cent to 3.1 per cent. Whilst this rate does not technically constitute a contraction, it is clear that it represents a pace below Turkey’s potential for job creation and long-term growth.
All these developments have also begun to feature prominently on the general economic agenda. Erdal Bahçıvan, Chairman of the Board of the Istanbul Chamber of Industry (ISO) – one of the most important civil society organisations in the Turkish economy – issued a statement on Wednesday (5 August) entitled ‘If the financing chain breaks, the production chain will also come to a halt’, in which he called for: ‘Temporary credit packages provide some breathing space for our industrialists, but the permanent solution lies in rebuilding Turkey’s industrial financing architecture.’
Bahçıvan highlighted that the latest ISO Turkey Manufacturing PMI (Purchasing Managers’ Index) figures indicate the slowdown in the manufacturing sector has gone beyond a temporary fluctuation, and that financing problems have now become a structural issue affecting the entire production chain.
As is well known, the Manufacturing PMI is a leading economic indicator that measures the economic health and growth trends of the manufacturing sector.
In his statement, Bahçıvan recalled that the ISO Turkey Manufacturing PMI figure, which stood at 47.7 in July, remained below the 50-point threshold; he emphasised that the deterioration in operating conditions had now reached its 28th consecutive month, that new orders continued to show a weak trend, and that production and employment had declined, adding:
“We must not be misled by the slight rise in the PMI figure. Production and employment have been on a downward trend for some time. The weakness in new orders persists. This picture clearly shows that the manufacturing sector is not merely facing a demand problem; there is also a serious breakdown in the chain of financing, working capital and liquidity.”
Noting that, from the perspective of Turkish industrialists, the financing crunch can no longer be viewed merely as a matter of securing bank loans, Bahçıvan summarised the situation as follows:
“When the credit mechanism fails to function properly, the need for financing does not disappear; it merely shifts elsewhere. Payment terms for major buyers are lengthening, pressure is mounting on interest rate differentials, and the cost of financing is being passed down the supply chain. Ultimately, the heaviest burden is borne by our SME manufacturers and suppliers, who have more limited bargaining power. Today, many of our SMEs are not merely engaged in production; they are effectively taking on their customers’ financing needs. They are collecting their receivables late, their working capital requirements are growing, yet at the same time, access to bank credit is becoming more difficult. The manufacturer’s role is not to finance their customers; it is to produce, invest, create jobs and export.”
Stating that they consider the objectives of permanently reducing inflation, keeping the current account deficit under control and ensuring macroeconomic stability to be of the utmost importance, Bahçıvan emphasised that they are not calling for broad and uncontrolled credit growth:
“The issue is not about abandoning the current stability programme. The issue is to complement the programme’s production and investment components with permanent financing instruments. Financing directed towards production, exports, technology and productivity must be channelled through a separate stream via selective, traceable and measurable mechanisms.”
Bahçıvan emphasised that temporary credit packages, restructuring measures and campaigns are valuable for industrialists; however, these steps alone cannot resolve the structural problem. Stressing that temporary support packages would provide industrialists with some breathing space, Bahçıvan stated that the permanent solution lies in re-establishing a financial system that allows for such breathing space. He called for the current structure—which is “over-reliant” on bank loans—to be transformed into a more balanced, diverse and resilient model, adding:
“What our industrialists need is the right financial climate to support this resolve. It must not be forgotten that if the financing chain breaks, the production chain also comes to a halt. A halt in the production chain is not merely a matter for industrialists; it concerns employment, exports, our cities and the future of Turkey. Standing up for industry means standing up for Turkey.”
As can be seen from this statement by ISO President Bahçıvan, the ‘high interest rate’ policy that has long been shaking the Turkish economy is now devastating industrial production, just as it has in many other areas; because this high interest rate policy has reduced—and continues to reduce—the growth rate of the Turkish economy by increasing borrowing costs and thereby suppressing domestic consumption and private sector investment…
The tight monetary policy implemented by the Central Bank of the Republic of Turkey (TCMB) to bring inflation under control has led to a marked slowdown in economic activity. Indeed, according to TÜİK data, the economy grew by 2.5 per cent year-on-year in the first quarter of 2026—lagging behind previous periods—and the quarterly growth rate fell to 0.1 per cent. The mechanism by which high interest rates slowed growth operated through the following main channels:
The rapid rise in interest rates on mortgages, car loans and consumer loans made it difficult for individuals to borrow to fund their spending.
The increase in interest rates on cash advances and credit cards slashed retail spending – the biggest driver of domestic demand – like a knife.
High deposit interest rates encouraged households to keep their money in the bank to earn risk-free returns rather than spend it.
The cost of commercial loans used by companies for investments in new factories, machinery or production lines peaked. This brought capacity expansion investments to a halt.
Sales in key sectors such as construction and the automotive industry—which are highly dependent on credit—fell sharply. This decline spread to the manufacturing sector, reducing production volumes.
Companies unable to invest and facing falling sales halted recruitment and reduced their workforce in order to balance their budgets.
Furthermore, whilst the suspension of recruitment and redundancies led to a persistently high rate of underemployment, thereby further reducing disposable income and, consequently, aggregate demand, inflation remained high due to the high costs caused by interest rates.
A policy interest rate that exceeds the rate of inflation – a situation generally referred to as a ‘positive real interest rate’ – fundamentally alters all economic balances. In such circumstances, first and foremost, consumer, mortgage and commercial loan interest rates rise rapidly as banks’ funding costs increase. Due to high interest rates, both individuals and companies avoid taking on debt.
As the costs of credit card and cash advance transactions rise, discretionary spending comes to a virtual standstill. Companies refrain from taking steps to secure the loans required for new factory, machinery or employment investments, as they find the costs far too high. Consequently, as investment declines, the rate of economic growth (GDP) falls and the economy cools. A positive real interest rate is often referred to as a ‘bitter pill to bring down inflation’.
Historically, the implementation of positive real interest rates to curb inflation has resulted in either great success or deep crises, depending on a country’s macroeconomic conditions. For example, in the US, during the period known as the ‘Volcker Shock’ (1979–1983), the country was experiencing a wave of chronic double-digit inflation (stagflation) triggered by the oil crises of the 1970s.
Paul Volcker, Chairman of the US Federal Reserve (Fed), aggressively raised the policy interest rate to 20 per cent whilst inflation stood at 14 per cent, in an effort to break inflationary expectations. As a result, the US economy entered two deep recessions in 1980 and 1981–1982, with unemployment exceeding 10 per cent. Again in the 1970s, Latin American countries such as Brazil, Mexico and Argentina had borrowed heavily in US dollars from global markets. As a result of the Volcker Shock, these Latin American countries were unable to bear the interest burden on their variable-rate dollar loans. As a global spillover effect of positive real interest rates, Mexico announced it had defaulted (gone bankrupt) in 1982. A dark period began for the region’s countries, known as the ‘Lost Decade’, characterised by hyperinflation and mass poverty.
As we have also experienced in Turkey, following the 2023 general elections, the Central Bank of the Republic of Turkey (CBRT) rapidly raised its policy rate. Consequently, whilst the resulting environment of positive real interest rates helped to bring down the underlying trend in inflation and made Turkish lira assets attractive, it placed a heavy burden on the real sector. Due to the excessive rise in lending rates, companies found it increasingly difficult to access finance; there was a significant rise in the number of companies filing for administration, and signs of a slowdown began to emerge in industrial production and the growth rate.
Consequently, in the current ‘positive real interest rate’ environment, as emphasised in the statement by ISO President Bahçıvan, if the policy is not carefully calibrated or if interest rates are persistently maintained at very high levels (ex-ante real interest rates of 10 per cent or above) for too long, this has led to a contraction of the productive base (deindustrialisation) and job losses. Despite all these developments, the Central Bank of the Republic of Turkey (CBRT) left its policy rate, standing at 37 per cent, unchanged for the fourth consecutive time at the latest Monetary Policy Committee (MPC) meeting. In short, whilst the high-interest-rate policy has, on the one hand, severely stifled industrial production and devastated economic growth, on the other hand, the public’s purchasing power has eroded by approximately 20 per cent in the first seven months of 2026 due to high inflation and stagnant wages.
The failure to implement an interim pay rise in July for the minimum wage—set at a net 28,075 TL in January 2026—led to a significant loss of real value in the face of inflation. According to TurkStat data, the real value of the minimum wage fell to 23,423 TL; the loss in purchasing power amounted to 4,652 TL. According to Istanbul Chamber of Commerce (İTO) data, the real value of the minimum wage fell to 23,096 TL; the loss in purchasing power stood at 4,980 TL; and according to Independent Inflation Research Group (ENAG) data, the real value of the minimum wage fell to 21,624 TL; the loss in purchasing power amounted to 6,451 TL. The minimum pension, which was raised to 23,552 TL by statutory regulation in July, also lost 419 TL in value in its very first month.
According to the Research Institute of the Confederation of Revolutionary Trade Unions (DİSK-AR) Wage Loss Monitoring Report (August 2026), the seven-month cumulative cost of inflation and taxes on workers’ wages has reached at least 1 trillion 487 billion lira. In this context, in the seventh month of the year, the cumulative total cost of inflation on insured workers’ wages alone rose to 798.6 billion lira, whilst the total cost of income and stamp duties amounted to 688.3 billion TL.
Workers’ cumulative total losses due to tax and inflation increased by 46.2 per cent compared with the first seven months of 2025. Workers spent at least 13 days of July 2026 working to cover taxes, deductions and inflation. The loss in the average worker’s wage due to tax and inflation (excluding deductions) amounted to 17,141 TL. Meanwhile, according to the United Metal Workers’ Union Research Centre (BİSAM) Hunger and Poverty Threshold Report, the minimum food expenditure required for a family of four to maintain a healthy and balanced diet (the hunger threshold) stood at 36,324 TL, whilst the poverty threshold – including housing and all other basic necessities – stood at 119,330 TL. According to data from the United Public Sector Workers’ Confederation, the hunger line for a family of four has risen to 38,216 TL, far exceeding the minimum wage.
The poverty line, meanwhile, has reached 117,336 TL. According to TurkStat’s Purchasing Power Parity data, Turkey’s per capita GDP index remained at 67 points, 33 per cent below the European Union (EU) average. All these developments demonstrate that, far from climbing to the first economic peak in history—which the ancient Sumerians reached by increasing production using methods that would be considered very primitive by today’s standards—life is becoming increasingly difficult even at the foot of the mountain; and that without breaking free from the persistently high interest rate policy, it has become impossible to restore economic growth and the public’s purchasing power.