The economic repercussions of May 21

As of May 21, 2026, the Turkish economy is under the influence of developments from two separate fronts. One is the political uncertainty stemming from the domestic legal system, and the other is the price shock in global energy markets. While both developments exert pressure on macroeconomic balances, it is observed that price movements in the markets are accelerating.

Global Energy Shock and the EU Commission Report

According to the Spring Report published by the European Commission this week, a new rise in global energy prices is occurring due to geopolitical tensions in the Middle East. This situation has led many regions, especially Europe, to revise their growth expectations downward. The Commission has lowered its 2026 growth forecast for the Eurozone from 1.2 percent to 0.9 percent.

The report also includes some findings regarding Turkey. It is stated that rising energy costs are increasing pressure on the current account deficit. It is expressed that the decline in inflation may slow down for this reason. The weakening of demand in Europe, which is Turkey's largest export market, also stands out as a factor that needs to be monitored in terms of the foreign trade balance.

Looking at the numerical data: Due to restrictions in the Strait of Hormuz, energy prices have increased by approximately 50 percent compared to the pre-conflict period. This situation caused the current account deficit to reach its highest level in three years in March, at 9.7 billion dollars. The annualized current account deficit is calculated at around 40 billion dollars. Inflation was recorded at 32.4 percent in April. The Central Bank of the Republic of Turkey (TCMB) has revised its year-end inflation target to 24 percent. The European Commission, on the other hand, predicts that inflation will remain just below the 20 percent level in 2027.

Market Volatility Stemming from Domestic Law

In addition to this external picture, the decision rendered by the Ankara Regional Court of Justice regarding the main opposition party's convention created volatility in the markets. Following the reflection of the decision in the public sphere, a decline exceeding 6 percent occurred in Borsa Istanbul. Due to the speed of the decline, circuit breakers were activated. While an increase in foreign currency demand was observed on the same day, reports appeared in the international press that public banks were conducting balancing transactions on the exchange rate.

Furthermore, selling pressure formed on Eurobonds, which are Turkey's foreign currency-denominated debt instruments. A loss of value of approximately 10 percent was experienced in the Turkey exchange-traded fund (ETF) traded in US markets. These data show that there is a change in the risk perception of foreign capital in the short term.

Inflation and Cost Structure

April inflation data reveal that the main reason for price increases is cost factors. Energy prices, the exchange rate level, and imported input costs continue to be reflected in prices. In particular, the external price shock in energy and intermediate goods directly affects the domestic price balance. Exchange rate volatility caused by political uncertainty also plays a role in increasing this pressure. The TCMB's interventions in the markets are struggling to fully balance the effects of externally sourced shocks.

Asset Peace Regulation

The asset peace regulation passed by Parliament provides for the bringing of assets abroad to Turkey with tax advantages. It is expected to create a relieving effect on the exchange rate by increasing foreign currency liquidity in the short term.

On the other hand, it is expressed by some circles that the regulation could raise question marks regarding Turkey's position before the Financial Action Task Force (FATF). Turkey had exited the grey list in June 2024. It is stated that the entry of assets whose source is not questioned into the system could be a subject of re-evaluation in terms of international financial transparency criteria. The medium-term consequences of this regulation need to be monitored.

Foreign Capital and Investment Environment

On the day these developments occurred, the economic administration's international contacts also drew attention. Diplomatic meetings at the NATO summit and meetings held with foreign investors at the Istanbul Finance Center show the importance Turkey attaches to long-term capital inflows.

It is known that international investment funds determine predictability and legal stability as the primary criteria in their investment decisions. It is stated that the uncertainty in domestic politics can be evaluated as a risk factor in terms of these criteria. Data regarding the country's risk premium (CDS) are also being monitored within this framework.

Balances for the Upcoming Period

The 3 percent growth rate projected by the European Commission for Turkey is below the potential growth rate. This situation indicates that a stagnant course may be observed in the labor market in the second half of the year.

The main variables that will determine the economic outlook in the coming months can be listed as follows: the duration of political uncertainty, the course of global energy prices, the Central Bank's monetary policy steps, and the speed of implementation of structural reforms.

It is assessed that if energy costs remain high and the domestic political agenda remains intense, pressure may form on exchange rates and interest rates. It is stated that this situation could affect domestic demand and investment decisions, and create upward risk on the unemployment rate.

On the other hand, if the political agenda calms down and there is a decline in energy prices, a balancing in capital flows may be seen. It is expressed that structural steps such as tax reform and the reorganization of public expenditures could positively affect the risk premium in the medium term. It is emphasized that while the short-term liquidity contribution of the asset peace can be evaluated as a tool in this process, the real way out is a permanent and predictable economic management framework.

Sharp Turn

The Turkish economy is in search of a balance between global energy costs and domestic political uncertainty. It is observed that monetary policy alone will not be enough to balance the economy, and that structural and legal predictability is at least as decisive as interest rate decisions.

The confidence of economic actors and investors is built more with sustainable policy frameworks than with temporary regulations. While practices such as asset peace respond to the urgent need for liquidity, it is seen that they are not sufficient on their own in establishing long-term trust.

In the coming period, the course of domestic political tension and developments in global energy markets will continue to be monitored as the two main axes determining the direction of the Turkish economy.