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  Basic statistics of Turkey (2011)

  This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of Turkey were reviewed by the Committee on 14 June 2012. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 27 June 2012.The Secretariat’s draft report was prepared for the Committee by Rauf Gönenç, Oliver Röhn, Seref Saygili and Ramazan Karasahin under the supervision of Vincent Koen. Statistical assistance was provided by Béatrice Guérard.The previous Survey of Turkey was issued in July 2010.Information about the latest as well as previous Surveys and more information about how Surveys are prepared is available at www.oecd.org/eco/surveys.

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  Executive summary

  Effective macroeconomic and structural policies helped the Turkish economy rebound vigorously following the global crisis: growth averaged close to 9% in 2010-11, accompanied by strong job creation. In the process, however, the current account deficit widened to around 10% of GDP and consumer price inflation rose to over 10%. The economic slowdown since mid-2011 is helping to reduce these external and domestic imbalances, albeit only gradually, given rising international energy prices. In order to ensure that the current account gap moves back into safer territory and inflation to the 5% target, both macroeconomic and structural policy levers need to be used and action has started to be taken in this direction. This will also lay the basis for sustained improvements in living standards over the longer run.

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  Key policy recommendations

  Macroeconomic and structural policies should concentrate on keeping the economy on a balanced and sustainable growth path. Preserving competitiveness in the short and long term is crucial.

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  Assessment and recommendations

  The impact of the global crisis was severe for Turkey, but shorter than in the rest of the OECD area and with a much sharper rebound. Domestic demand recovered swiftly and growth reached 9.2% in 2010 and 8.5% in 2011 (). Employment has been remarkably resilient during the crisis, thanks to a set of new pro-employment incentives (OECD/ILO, 2011). Employment in industry declined in 2009 but then rebounded rapidly, whereas employment remained on a rising trend in agriculture, construction and services ().

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  Tackling external and domestic macroeconomic imbalances

  Effective macroeconomic and structural policies helped Turkey bounce back quickly and strongly from the global crisis, with annual growth averaging close to 9% over 2010-11. However, the current account deficit widened to around 10% of GDP in 2011 and consumer price inflation rose to over 10%. The external deficit, which is far too large for comfort, is a source of vulnerability. So is double-digit inflation, even if it partly reflects transient factors. These imbalances signal competitiveness problems and a dearth of domestic saving. They need to be addressed using both macroeconomic and structural policy levers. Monetary policy has recently tried to reduce the volatility of capital flows but inflation has been high and volatile. The inflation target needs to be given greater prominence. The fiscal stance remains broadly appropriate but could be tighter, if warranted, to complement monetary restraint and help keep the real exchange rate on a sustainable path. More balanced growth through strengthened competitiveness and greater private saving calls inter alia for increased labour force participation, accelerated formalisation, stronger productivity growth, improvements in financial literacy and a more attractive menu of saving instruments. Improvements in the business environment would spur foreign direct investment, making for healthier funding of the external gap.

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  Structural reforms to boost long-term growth

  Turkey has the potential to achieve strong sustainable growth and job creation but further reforms in the labour market, education and product markets are required for such gains to materialise. In recent years, growth has been largely driven by the industrial catch-up of Anatolian regions, although the Marmara area in the West has also been very dynamic. At the same time, export diversification towards the Middle East and Africa has helped support the expansion. In the process, labour force participation has started to rise anew, but around one third of new low-skilled jobs have been created in the informal sector, in firms exposed to competition from less-advanced emerging economies. Sustaining vigorous growth over the longer run therefore requires pushing ahead with a number of structural reforms that are conducive to higher productivity within each sector and ensure resources are allocated in areas where they are most productive. First, Turkey’s rigid labour market regulation needs to evolve, so as to encourage job creation in the formal sector. Second, further progress with education reform, from pre-school all the way to the tertiary level and vocational training, is needed to boost growth and bring about employment gains in the formal sector. Third, implementing product market reforms, notably in network industries, would unleash productivity gains in those sectors and be a boost to the rest of the economy. A set of alternative growth scenarios through 2030 illustrates how progress on these various fronts can lift productivity growth and deliver lasting improvements in living standards.

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