Impact of Global Financial Conditions on Firm Expectations

This technical report investigates the influence of global financial conditions on firms' expectations and operational capacity within a small open emerging economy, specifically focusing on Turkey. Utilizing monthly survey data from Turkish manufacturing firms from 2009 to 2024, the study correlates firms' expectations regarding macroeconomic outlook, investment, sales, employment, export orders, and capacity utilization with the Chicago Fed’s National Financial Conditions Index (NFCI). The analysis employs firm-level panel regressions that account for fixed effects and various controls, allowing the impact of global financial tightening to differ based on firms' reliance on external financing and export intensity. The findings indicate that tighter global financial conditions generally diminish expectations across all areas, with more pronounced effects observed in firms that are highly leveraged or export-oriented. Additionally, the report notes a shift in the impact of these conditions post-2020, suggesting that domestic inflation and policy changes have increasingly influenced firms' expectations.