Economic outlook, analysis and forecasts

Turkey - Economic forecast summary (June 2016)

 

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GDP growth is projected to remain close to 4% per annum in 2016 and 2017. A sharp hike in the minimum wage and social transfers in early 2016 will boost private consumption. However, the associated increase in labour costs, despite subsidies to alleviate them in the first year, will hurt competitiveness and exports. As the short-run impact of the jump in household income wanes, growth is projected to edge down in 2017.

Business and household confidence remain frail in the context of severe regional geopolitical tensions and a difficult domestic political climate. The implementation of the key provisions of the 2016 Action Plan, which entails convergence towards OECD good practices in many areas, would improve both domestic and international confidence, and support investment and growth.

Productivity is undermined by the fragmentation of the business sector. Efficient firms cannot grow at full potential due to shortcomings in the regulatory framework. At the same time, low-productivity entities, which employ a large share of the low-skilled, survive thanks to the incomplete enforcement of rules and regulations. The resulting stalemate calls for a comprehensive upgrading of the business environment and skills, to foster the shift of resources from low to higher-productivity firms.

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