Turkey: Economic outline
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 | 2019 | 2020 | 2021 (e) | 2022 (e) | 2023 (e) |
GDP (billions USD) | 760.52 | 719.92e | 795.95 | 844.53 | 946.01 |
GDP (Constant Prices, Annual % Change) | 0.9 | 1.8e | 11.0 | 3.3 | 3.3 |
GDP per Capita (USD) | 9,146 | 8,610e | 9,407 | 9,864 | 10,923 |
General Government Balance (in % of GDP) | -4.4 | -2.9e | -2.8 | -2.9 | -2.9 |
General Government Gross Debt (in % of GDP) | 32.7 | 39.8e | 37.8 | 37.9 | 39.0 |
Inflation Rate (%) | 15.2 | 12.3e | 17.0 | 15.4 | 12.8 |
Unemployment Rate (% of the Labour Force) | 13.7 | 13.1e | 12.2 | 11.0 | 10.5 |
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, 2016
Note: (e) Estimated Data
Monetary Indicators | 2016 | 2017 | 2018 | 2019 | 2020 |
Turkish Lira (TRY) - Average Annual Exchange Rate For 1 GBP | 4.08 | 4.70 | 6.44 | 7.13 | 8.99 |
Source: World Bank, 2015
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Latest Update: June 2022