GDP, current US$ billion
GDP per capita, current US$
Life Expectancy at Birth, years
Turkey’s economy grew 11 percent in 2021, the fastest among the G20 countries, as COVID-19-related measures were gradually relaxed in Turkey and abroad. Although Turkey’s interest rate cuts from September supported demand, they also amplified macro-financial instability, which, combined with spillovers from the Ukraine-Russia war, will lower 2022 growth to 1.4 percent. Rising energy and food price inflation will hurt the poor the most, compromising a gradual employment-driven, post-pandemic poverty recovery.
Turkey enjoyed high growth rates between 2002 and 2017 that propelled the country to the higher reaches of upper-middle-income status. But productivity growth slowed as reform momentum waned over the past decade, and efforts turned to supporting growth with credit booms and a demand stimulus, exacerbating internal and external vulnerabilities. High private sector debt, persistent current account deficits financed by short-term portfolio flows, high inflation, and high unemployment have been intensified by macro-financial instability since August 2018. Moreover, the economy’s high energy and carbon intensity make it vulnerable to global energy supply and price volatility and pose a challenge for Turkey’s exporters in the context of global and regional decarbonization policies.
The Turkish economy experienced an exchange rate crisis in the second half of 2018 that resulted in weak growth performance in 2019. By early 2020 the economy had started to recover, just as it was hit by the COVID-19 crisis in the second quarter of the year. However, Turkey was among the few countries with a positive growth performance in 2020 (at 1.8 percent), on account of a sizable credit push by the Government. Turkey’s growth accelerated to the highest rate among G20 countries in 2021 (at 11 percent) as COVID-19-related measures were gradually relaxed in Turkey and abroad and authorities loosened monetary policy. However, the monetary stimulus also caused deteriorating macro-financial conditions. The lira depreciated to record lows and inflation rose to record highs, with the former reaching a peak of 18.00 to the U.S. dollar on December 20, 2021, and the latter reaching 61.1 percent year-on-year in March 2022. External and fiscal buffers deteriorated as the Central Bank dipped into foreign reserves to support the lira and the Government deployed tax rate reductions and fuel subsidies to dampen the impact of inflation.
The Russian invasion of Ukraine is amplifying the headwinds facing the Turkish economy. Given Turkey’s close economic ties to both Russia and Ukraine, the war is expected to disrupt Turkey’s energy and agricultural trade, tourist arrivals, and overseas construction activities. Price spikes of essential commodity imports will directly affect households and industry and adversely impact the current account balance and inflation. Low-income households in Turkey are especially affected as they spend nearly twice as much of their budget as the wealthiest on food and housing.
Last Updated: Apr 19, 2022