Türkiye has scope for faster economic convergence with most advanced economies. Fixed investment is skewed towards housing, though the contribution of productivity-enhancing assets has grown over recent years. The working-age population continues to increase but the demographic dividend is set to decline, and female labour force participation is low. Productivity has increased relatively quickly in recent years but from low levels.

Reducing barriers to job creation and enhancing incentives to work would facilitate women’s participation in the labour market and would help sustain economic growth more generally. Türkiye should also better match the skills of new labour market entrants to employer needs and promote upskilling throughout working lives. Easing regulatory barriers for businesses and ensuring a level-playing field between state-owned and private enterprise would boost productivity and improve resource allocation.

Output is projected to grow at 3.6% in 2025 and 3.4% in 2026, before increasing by 4.0% in 2027. Higher tariffs will weaken exports, but the effect is expected to be relatively small and short-lived. Improved financial conditions will support private consumption and investment in 2026 and 2027, which in turn will trigger stronger imports. The decline in inflation is projected to continue. Headline inflation is expected to fall to 10% by the end of 2027, but upside risks to this projection remain significant.

Monetary policy has become more supportive in the third quarter of 2025 as the central bank started to reduce its policy rate. Lower inflation will allow further interest rate reductions in 2026 and 2027, but the tight monetary policy stance should be sustained until inflation has declined durably. The fiscal deficit is expected to narrow. Regulatory reforms to reduce barriers to entry in services sectors will be key to raise long-term growth potential, along with policy efforts to boost labour force participation and improve skills.