Turkey flag Turkey: Economic and Political Overview

The economic context of Turkey

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

The Turkish economy was struck by Covid-19, particularly after March 2020 as the country went into a nationwide lockdown, with some of Europe's strictest measures against the breakout of the pandemic. The government sought to mitigate the effects of Covid-19 by loosening its monetary policy, extending credit and delving into its foreign reserves. This strategy allowed a strong rebound of the economy, GDP growth reaching an estimated 9% in 2021 (IMF), boosted by dynamic exports. According to IMF forecast, GDP growth should return to a lower trend but remain firm in 2022 and 2023 (3.3%). Inflation, currency volatility and unorthodox policy are among the downside risks to the outlook (Focus Economics).

Turkey’s recovery from the COVID-19 pandemic crisis has been ‘remarkable’ (IMF), the country being  among the few countries not to dive into recession. Turkey's strong hospital infrastructure limited the extent of Covid-19 cases and deaths, and the large interest rate cuts, rapid credit provision by state-owned banks, administrative and regulatory credit incentives, and extensive liquidity buoyed growth (IMF). However, this expansionary monetary stance resulted in interest rates falling below market expectations, a rapid decline in the value of the lira and shrinking foreign reserves. The government took an almost complete U-turn in November 2020, appointing a new chairman to the central bank as well as a new finance minister, and shifting towards a firm monetary policy stance to rein inflation. Nonetheless, cuts in interest rates pushed the lira to record lows at the end of 2021, causing inflation to reach a near two-decade high of 36% in December. According to IMF estimates, inflation soared to 17% in 2021, and is expected to remain high in 2022 (15.4%) and 2023 (12.8%). As direct fiscal support has been modest, public debt remained contained below 40% GDP, reaching 37.8% GDP in 2021. It is expected to increase to 37.9% GDP in 2022 and 39% GDP in 2023 (IMF). Fiscal policy remained tight, with public deficit amounting to -2.9% GDP in 2021 and forecasted to be stable in 2022 and 2023 (-2.9% GDP). The authorities are pursuing relaxed monetary and exchange rate policies to improve exports’ competitiveness. Among the main challenges are large external financing needs, a heavily indebted private sector and a weak lira (The Economics Intelligence Unit). According to the OECD, pursuing a credible monetary policy and implementing structural reforms should be a priority.

The unemployment rate, which had reached 13.7% in 2019, was further impacted by the Covid-19 pandemic as most businesses remained closed for months whereas tourism - a major source of employment - took a nosedive. Employment partially recovered along with the rebound in economic activity, but expanded more rapidly in export-oriented manufacturing than in services (OECD). According to IMF estimates, unemployment rate decreased to 12.2% in 2021, and is forecast to further fall to 11% in 2022 and 10.5% in 2023. Market conditions remain challenging, particularly among females and the youth. Wage inequality and the size of the informal sector remain as long-standing problems.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 760.52719.92e795.95844.53946.01
GDP (Constant Prices, Annual % Change) 0.91.8e11.03.33.3
GDP per Capita (USD) 9,1468,6109,4079,86410,923
General Government Balance (in % of GDP) -4.4-2.9-2.8-2.9-2.9
General Government Gross Debt (in % of GDP) 32.739.8e37.837.939.0
Inflation Rate (%) 15.212.319.660.537.2
Unemployment Rate (% of the Labour Force) 13.713.1e12.211.010.5
Current Account (billions USD) 6.76-37.30-19.24-13.57-16.34
Current Account (in % of GDP) 0.9-5.2-2.4-1.6-1.7

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

The agricultural sector constitutes 6.7% of Turkey’s GDP. Despite employing 18% of the population, the sector continues to suffer from low productivity due to reliance on small farms. Approximately 11% of Turkey’s territory is used as agricultural land. Wheat is the country’s main crop, though Turkey is the world’s third largest exporter of tobacco and the largest producer of hazelnuts (nearly 70% of global production). Turkey continues to be a net exporter of agricultural products, but livestock imports are growing exponentially to compensate the shrinking animal breeding sector. Mineral resources are abundant, but under-exploited. Turkey's recent discovery of natural gas resources in the Black Sea could help increase the share of mineral activity in economy in the near future.

Manufacturing is the main industrial activity of the country. Secondary sector accounts for 28% of GDP and employs 25% of the workforce. The Turkish government gives special priority to large infrastructure projects, particularly in the transport sector, through Build-Operate-Transfer (BOT) project financing model. Car manufacturing and textile spearhead the Turkish industry.

The services sector has grown rapidly in early 2000s, peaking at 59% of GDP in 2009 but has fallen since to account for 54.2% of GDP in 2020, while employing 57% of the country’s workforce (World Bank). Tourism represents nearly 4% of GDP and is a major source of foreign currency for the nation. However, Turkey’s tourism income has narrowed significantly in 2020 as the COVID-19 pandemic led to worldwide travel restrictions, border shutdowns, and an overall drop in consumer demand. According to estimates by the Turkish Ministry of Tourism and Culture, the number of tourists decreased by around 72% in 2020 compared to 2019. The sector rebounded in 2021, as in the January-November 2021 period, the number of foreign visitors increased by 89,61% compared to the previous year.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 18.1 25.3 56.6
Value Added (in % of GDP) 6.6 27.8 54.6
Value Added (Annual % Change) 4.8 0.6 1.1

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
64/100
World Rank:
76
Regional Rank:
37

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
6.55
World Rank:
44/82

Source: The Economist - Business Environment Rankings 2014-2018

 

Country Risk

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Sources of General Economic Information

Ministries
Presidency of Strategy and Budget
Ministry of Agriculture and Forestry
Ministry of Science, Industry and Technology
Ministry of Treasury and Finance
Statistical Office
Turkish Statistical Institute
Central Bank
Central Bank of the Republic of Turkey
Stock Exchange
Istanbul Stock Exchange
Economic Portals
Ministry of Foreign Affairs
Turkish Investment Support and Promotion Agency
Capital Markets Board of Turkey
 

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Latest Update: June 2022