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Overview Economic Survey of Turkey 2012
Turkey’s economy rebounded vigorously following the global crisis, but in the process external and domestic macroeconomic imbalances emerged. Growth averaged close to 9% in 2010-11, with strong job creation. At the same time, the current account deficit widened to around 10% of GDP and consumer price inflation rose to over 10%. The ongoing global slowdown helps reduce these imbalances somewhat, but they remain a source of vulnerability as the economy continues to depend strongly on foreign confidence and capital inflows in a fragile international environment.
Rebalancing has started but needs to be consolidated. In addition to the domestic slowdown, exchange rate depreciation in the course of 2011 brought about competitiveness gains and a reduction in the current account deficit but these gains may prove transient if the large inflation differentials with trade partners persist. The recent deceleration in inflation benefitted from favourable exchange rate pass-through effects and food and energy price developments, but anchoring inflation expectations at low single digit rates has been elusive to date. A durable rebalancing calls for continuing action on macroeconomic and structural fronts.
A new monetary policy regime was put in place in late 2010, to try and contain domestic demand without fuelling capital inflows and excessive exchange rate appreciation. It helped improve competitiveness and rebalance demand but inflation remained above target and bringing it down should regain priority. Fiscal policy kept public finances on a sustainable path but may need further tightening to support monetary policy and to build up sufficient buffers in case the international environment weakens.
External competitiveness remains crucial for Turkey’s economic performance both in the short and the long term. Competitiveness gains are necessary to rebalance domestic and external demand, and increase the pace of employment, income and domestic saving growth. They are needed to improve the employment opportunities of the low-skilled majority of Turkey’s working age population and help reduce poverty and foster social cohesion. Given Turkey’s trade specialisation, improving non-price competitiveness is important, but maintaining price competitiveness is essential.
Structurally strengthening the business sector is crucial to boost productivity. Too many of the new businesses and jobs are created in the informal sector and the skills of the majority of the labour force remain too low. Both exert a drag on productivity and competitiveness. To encourage hiring and growth in the more productive formal sector, far-reaching labour market reforms and a more flexible labour contract are indispensable. To strengthen human capital, enrolment in the education system has been considerably improved, but there remains ample scope to improve quality and equity. In addition, upskilling the existing labour force should be a policy priority.
Potential output and living standards could be raised by up to a quarter by 2030 relative to a baseline projection according to reform scenarios embodying labour market and educational reforms.
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Additional information |
For further information please contact the Turkey Desk at the OECD Economics Department at eco.survey@oecd.org.
The OECD Secretariat's report was prepared by Rauf Gonenc, Oliver Roehn and Ramazan Karasahin under the supervision of Vincent Koen. Research assistance was provided by .
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