Economic Outline

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.

Any Comment About This Content? Report It to Us.