GDP growth is projected to increase from 3% in 2015 to above 4% in 2017, as political uncertainties are assumed to fade, employment continues to rise, and the exchange rate depreciation and the gradual strengthening of global markets support export growth. The geopolitical crisis at the southern border and the associated influx of refugees pose challenges. Currency depreciation until October has strengthened price competitiveness, but has also weakened household confidence, created pressures on corporate balance sheets and added to already high inflation.
Large external funding needs and volatile international capital market conditions warrant cautious macroeconomic policies. Monetary policy should remain tight to ensure inflation is controlled, and it may have to be tightened if inflation remains persistently above target. Room is probably available for fiscal support, although shortcomings in fiscal transparency at the general government level make judgments in this area difficult. Progress in implementing programmed structural reforms will be crucial to rebalance demand and strengthen growth.
Turkey’s carbon footprint per capita is lower than in the more advanced economies, but is growing at one of the fastest rates in the OECD area. The government’s recent announcement of a quantitative emission path for the period 2020-30 should help to set concrete energy efficiency measures, such as stronger harmonisation of tax rates on fuels in different uses, and will promote investment in renewable energy.