For nearly three years, Turkey’s economic policy has rested on a difficult political bargain. President Recep Tayyip Erdoğan would tolerate high interest rates, slower domestic demand and the political pain of austerity in exchange for something he desperately needed: lower inflation and restored credibility.
That bargain is now coming under pressure.
The OECD’s latest projections offer a sobering picture. On September 23, it raised its forecast for Turkey’s 2026 inflation rate from 28.4 percent to 31.5 percent, while lifting its 2027 forecast dramatically from 18.3 percent to 24.7 percent. At the same time, it cut its 2026 growth forecast from 3.1 percent to 2.7 percent—the third downgrade of Turkey’s growth outlook this year. Reuters
The numbers point to an uncomfortable possibility: Turkey may be entering the worst part of the stabilization process, where the population is already paying the price of tight monetary policy but inflation is proving much harder to defeat than promised.
For Finance Minister Mehmet Şimşek, this is an economic problem.
For Erdoğan, it is increasingly a political one.
The Şimşek Bargain
When Şimşek returned to economic management in 2023, the underlying objective was to reverse years of extraordinarily loose monetary policy and restore conventional economic management.
The medicine was always going to hurt.
The central bank’s policy rate now stands at 37 percent, while tight monetary and fiscal policies have deliberately restrained domestic demand. Second-quarter GDP grew only 2.3 percent year-on-year, below the 2.9 percent expected by economists, marking a fourth consecutive quarter of relatively weak growth. Domestic demand actually contracted 1.3 percent from the previous quarter. Reuters
From a central banker’s perspective, that weakening can be interpreted as evidence that the medicine is working. Demand must cool if inflation is to fall sustainably.
But ordinary voters experience macroeconomic “rebalancing” differently.
They experience it through expensive credit, weaker purchasing power, struggling businesses and a persistent sense that prices continue rising despite years of promised normalization.
That is where economic orthodoxy collides with electoral politics.
Then Came the Energy Shock
Turkey’s problem is made worse by something Ankara cannot control.
The Iran conflict has pushed energy prices sharply higher. Brent crude moved above $100 a barrel in September as fighting and disruptions around the Strait of Hormuz intensified. Sustained energy prices at those levels threaten higher transportation and manufacturing costs and renewed inflationary pressure throughout energy-importing economies. Reuters
Turkey is particularly vulnerable because of its dependence on imported energy.
And this changes the political economy of the Şimşek program.
Until recently, Ankara could argue that patience would eventually produce a relatively straightforward reward: tight policy would reduce demand, inflation would fall, interest rates could eventually decline and economic growth would recover.
The external energy shock complicates that sequence.
Turkey can suppress domestic demand. It cannot determine the price of oil in the Persian Gulf.
Indeed, the problem is now global. The Federal Reserve, European Central Bank and Bank of Japan have all recently tightened monetary policy as the Iran war and elevated energy costs revive inflation concerns. Reuters
Turkey is therefore attempting disinflation just as the international environment is becoming more inflationary.
Erdoğan’s Political Dilemma
This creates a particularly difficult problem for Erdoğan.
The president built much of his earlier political success during an era of expanding consumption, cheap credit, infrastructure investment, construction and rising household prosperity.
The Şimşek model requires almost the opposite political economy.
It asks voters to consume less, borrowers to pay more, businesses to tolerate expensive financing and the government to resist using credit and public spending to stimulate growth.
That may be sound stabilization policy.
But it is not naturally Erdoğanist economics.
And the longer inflation remains above 30 percent, the harder it becomes politically to defend the sacrifice.
The central question is therefore no longer simply whether Şimşek’s program makes economic sense.
It is how long Erdoğan is prepared to pay its political price.
The Most Dangerous Scenario
There are broadly two ways the story could develop.
The first is painful but manageable. Ankara maintains monetary discipline, external energy pressures eventually ease, inflation resumes its decline and the government enters the next political cycle with enough room to lower rates and stimulate economic activity without destroying credibility.
The second is much more dangerous.
Growth remains weak. Energy costs remain high. Inflation becomes sticky. Public dissatisfaction increases. Erdoğan then begins pressuring economic policymakers for lower interest rates, cheaper credit or greater fiscal stimulus before inflation has been brought under control.
Turkey has seen versions of this cycle before.
Premature easing could generate short-term relief while reviving pressure on prices and the currency—forcing policymakers eventually to tighten again.
The result would not simply be another inflation problem.
It would undermine the credibility Şimşek has spent years trying to rebuild.
The Economy Has a Memory
This is perhaps the most important constraint facing Erdoğan.
Turkey can change ministers overnight. It cannot reset expectations overnight.
Businesses, households and financial markets remember previous episodes in which inflation was underestimated, interest rates were cut despite rising prices and economic policy changed according to political priorities.
Credibility therefore takes years to construct and days to damage.
The OECD’s new projections do not mean the stabilization program has failed. Inflation has fallen substantially from earlier peaks, and weaker domestic demand suggests monetary tightening is having an effect.
But the projections do suggest that the finish line has moved farther away.
And that matters politically.
Every additional month of high inflation means another month in which voters are asked to endure the cost of stabilization without receiving its full benefits.
Running Out of Room
Turkey’s economic experiment is therefore approaching its most difficult phase.
The government has already used high interest rates. Domestic demand has already weakened. Growth expectations are being revised downward. Yet inflation remains exceptionally high, while an external energy shock threatens to make the final stage of disinflation even harder. Reuters
Şimşek’s challenge is to persuade markets that Turkey will stay the course.
Erdoğan’s challenge is very different: he must persuade voters that staying the course is worth the pain.
And eventually those two objectives may collide.
If Erdoğan protects the program, he must accept slower growth and political discontent for longer than he may have anticipated.
If he abandons it too early, Turkey risks returning to precisely the inflationary cycle that made the Şimşek program necessary in the first place.
That is why the OECD’s latest forecast matters beyond economics.
Turkey is not simply running out of easy options. Erdoğan may also be running out of political room to postpone the choice between economic discipline and economic populism.
