Turkish Companies ‘Paying the Bill’ as Political Crisis Roils Economy

 Cats watch as fishermen gather their catch at Besiktas neighborhood in Istanbul on March 28, 2024. (AFP)
Cats watch as fishermen gather their catch at Besiktas neighborhood in Istanbul on March 28, 2024. (AFP)
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Turkish Companies ‘Paying the Bill’ as Political Crisis Roils Economy

 Cats watch as fishermen gather their catch at Besiktas neighborhood in Istanbul on March 28, 2024. (AFP)
Cats watch as fishermen gather their catch at Besiktas neighborhood in Istanbul on March 28, 2024. (AFP)

Turmoil unleashed by the arrest of Türkiye’s leading opposition figure last week has sent shockwaves through the private sector, forcing companies to rethink strategy and dig in for a period of uncertainty and potential economic instability.

The detention of Istanbul Mayor Ekrem Imamoglu, who leads long-serving President Recep Tayyip Erdogan in some polls, has provoked the largest anti-government protests in a decade, leading to mass arrests and international condemnation.

The move also sent the lira currency to a record low, fueling a sell-off of Turkish assets that has destabilized company balance sheets and driven up already high borrowing costs.

Company officials told Reuters that Turkish businesses across sectors were scrambling to reassess risk, with some already pausing planned investments and slashing budgets.

"The industrialists now have to pay the bill for a crisis they did not cause," said Seref Fayat, chairman of System Denim, which manufactures garments for leading Western brands and exports them to Europe and the United States.

Fayat, who also heads a garment industry lobby group, said his credit costs have spiked due to the market turmoil.

He had been drawing up budgets for a second-half expansion of his business in anticipation of an expected rebound in customer demand from Europe.

"We immediately shelved these plans following the latest developments," he said.

The lira has recovered somewhat after touching a record low of 42 to the dollar, but only after the central bank stepped in to prop up the currency.

And businesses worry more pain is on the way.

Expectations of declining inflation and lower interest rates following the adoption of an orthodox economic program that had promised Turks future relief after years of soaring prices and currency crashes, now seem in doubt.

In an unscheduled meeting last week, the central bank raised its overnight lending rate by two percentage points to 46%.

According to information provided to Reuters by bankers, short-term commercial loan interest rates have increased from an average of 42-43% to 52-53%, with some rates as high as 60%.

Morgan Stanley now forecasts any cuts to the central bank's policy rate will be shelved until June. And Goldman Sachs said it expected a hike in the policy rate by 350 basis points.

'EVERY COMPANY NEEDS A PLAN'

"The latest developments will affect companies' investment expenditures the most," Hakan Kara, a former central bank chief economist now on faculty at Bilkent University in Ankara, said on X, pointing out that investment had already been slowing.

"This will probably become even more apparent in the short-term."

The government has said the recent economic turmoil would be limited and temporary. But some company officials worry the crisis may only be beginning.

Elections are set for 2028 when Erdogan, who has dominated Turkish politics for more than two decades, will reach his term limit.

Many, however, see the arrest of Imamoglu, who was jailed on Sunday pending trial for graft, as an early indication he could seek to remain in power, either through an early election or constitutional changes that would likely face public opposition.

Mehmet Buyukeksi, a board member at Ziylan, which operates in retail and real estate, said expectations of a more positive business outlook in Türkiye based on government efforts to right the economy as well as strengthening demand were now less certain.

Improvements, including lower borrowing costs, that he had been expecting to see in July, he is now pushing back to September, he said.

And there are other knock-on effects.

One company official said some firms were carrying out human resources risk assessments, worried that they could face blowback if their employees participate in protests or share political content on social media.

Some conglomerates are reevaluating their risks in terms of exchange rates, inflation, funding costs and are significantly increasing the likelihood of negative impacts in their assessments, the company official said.

And a mergers and acquisitions consultant said that, while some foreign firms might look past criticisms that the Turkish government's actions are growing increasingly undemocratic, few will pour investment into an economically fraught environment.

"Everyone will re-do their calculations and books," said Fikret Kaya, the general manager of plastics and industrial equipment manufacturer Kayalar.

"We have had to make monthly evaluations that we used to make quarterly. I think every company needs to make a plan."



Tesla, Chips, and Banks Tumble as China’s Retaliation Stokes Fears of Widening Trade War

Tesla’s logo on a building of the Tesla Gigafactory in Gruenheide, near Berlin, Germany, 03 April 2025. (EPA)
Tesla’s logo on a building of the Tesla Gigafactory in Gruenheide, near Berlin, Germany, 03 April 2025. (EPA)
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Tesla, Chips, and Banks Tumble as China’s Retaliation Stokes Fears of Widening Trade War

Tesla’s logo on a building of the Tesla Gigafactory in Gruenheide, near Berlin, Germany, 03 April 2025. (EPA)
Tesla’s logo on a building of the Tesla Gigafactory in Gruenheide, near Berlin, Germany, 03 April 2025. (EPA)

US chip companies, banks and oil majors fell sharply on Friday after China retaliated to Trump's tariffs with steep duties, in an intensifying trade war between the world's two largest economies that cast a shadow on global growth.

China slapped additional duties of 34% on US goods, set to go into effect April 10. It also announced curbs on exports of some rare-earths and added several US firms to its export control list and the "unreliable entities" list, which allows Beijing to take punitive action.

The action followed US President Donald Trump's 34% duties on imports from China announced on Wednesday, which triggered a massive market meltdown on Thursday. The latest levies were on top of the 20% tariffs on China imposed earlier this year.

Investors were already fretting over potential supply chain disruptions, price hikes and demand destruction for everything from cars and smartphones to sneakers.

Shares of Tesla and Apple - among consumer tech companies with a large exposure to China - were down 8% and 4%, respectively. While both companies have local production in China, duties on US-imported parts could squeeze margins and force price hikes.

"Several tech companies have established local supply chains in China. Most source components from China already, and hence, disruptions should be controllable, though we do expect price hikes on parts and components not being sourced from China," said Nishant Udupa, practice director at research firm Everest Group.

For Tesla, already in a bruising price war with local Chinese rivals, raising prices would pressure demand further.

"Apple's smartphone sales had already been declining in China for some time, faced with growing, cheaper competition. So, the prospect of steep import duties being imposed is likely to sharply erode sales even further," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Shares of Alphabet, Microsoft and Amazon.com were subdued as they had limited exposure to China.

GE Healthcare's stock slid nearly 13%, following China's export controls on a rare-earth metal that is used in MRI scans. The country's announcement of an anti-dumping investigation into imports of certain medical CT tubes from the US and India added to the worries.

SEMICONDUCTORS

Chip companies are set to face headwinds, too, although US exports a much smaller amount of electronic equipment to China. Shares of Intel, Applied Materials and Qualcomm, all of which count on China for at least 30% of revenue, were down 5% to 8%.

The US exported more than $15 billion worth of electrical and electronic equipment to China in 2024, with most of the value coming from integrated circuits, transistors and other semiconductor devices, according to economic data provider Trading Economics. In comparison, the U.S. imported more than $127 billion in electronic equipment from China last year.

"Semiconductors will feel a greater impact ... We're already witnessing a domestic ecosystem evolve in China, with direct alternatives for every major US semiconductor firm. This trend is likely to accelerate," Udupa said.

NATURAL RESOURCES

Crude prices, already under pressure from an expected OPEC+ oil output hike in May, added to the losses.

Oil majors Exxon and Chevron fell more than 5%. Top oilfield service company SLB dropped 10%, and the biggest US refiner by volume, Marathon Petroleum, fell 6%. Chemicals company DuPont slid 12%.

"The trade war escalated, recession fears rise and consequently oil demand growth is to take a sizeable hit," said Tamas Varga, analyst at PVM.

China is also the largest market for US agricultural products, even as imports of US farm goods dropped last year.

Shares of top grain traders like Archer-Daniels-Midland fell 8% while Bunge was down 6%. Fertilizer firms Mosaic and CF Industries fell 10% and 8%, respectively.

China's tariffs on US soybean exports would increase the cost to local customers, especially animal feed producers, and could prompt the country to source more from Brazil and Argentina, said Morningstar analyst Seth Goldstein.

BANKS

Banks' shares extended their declines from Thursday. The industry has been clouded by fears that a trade dispute could temper consumer confidence, reduce spending, weaken loan demand and pressure fees from advising on deals.

JPMorgan Chase, the biggest US bank by assets, sank 7%. Wall Street titans Goldman Sachs and Morgan Stanley dropped more than 7% each.

MACHINERY

Heavy machinery makers Caterpillar and Deere fell 5% and 4%, respectively, on concerns over demand from one of their largest overseas markets.

China is a major buyer of construction and agricultural equipment and a key player in global infrastructure spending.

RETAIL

Shares of major luxury and footwear firms reversed coursed after Trump said Vietnam's leader To Lam has offered to reduce tariffs on US imports. Ralph Lauren's shares were up 2.5%, while Tapestry rose as much as 3.6%.

Nike gained 4%, Roger Federer-backed On jumped 7.2% and Lululemon Athletica rose 3%. The stocks had initially fallen after retaliatory tariffs by China, a major revenue contributor.