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2018 OECD Economic Surveys: Turkey 2018

image of OECD Economic Surveys: Turkey 2018

The Turkish economy bounced back strongly after the failed coup in July 2016 but going forward growth is set to be closer to potential. The exchange rate has depreciated considerably, inflation is high and so is the current account deficit. Growth has been overly dependent on consumption and external savings and should be rebalanced by improving export performance. There is ample room to improve the quality of governance, including with respect to fiscal, monetary and macroprudential policy. Progress in these areas would help bring about disinflation and reduce risk premia, thus lowering financing costs. Coupled with increased foreign direct investment, this would contribute to improve the quality of business capital formation, and to generate high-quality sustainable jobs for the rapidly expanding labour force.

SPECIAL FEATURE: UPGRADING BUSINESS INVESTMENT

 

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Key Policy Insights

Turkish GDP per capita has continued to catch up with the more advanced OECD economies. Despite a series of adverse shocks including severe geo-political tensions at the southeastern border and an averted coup attempt in 2016, GDP growth averaged nearly 7% over 2010-17 (, Panel A). Labour productivity now exceeds that of several other catching-up OECD economies (Panel B), notwithstanding the prevalence of low-productivity informal activity, especially in agriculture. This reflects the strong performance of a dynamic, albeit fragmented, business sector. Despite dynamic job creation and a labour force growing at above 3% per year, the employment rate of the working age population remains the lowest in the OECD.

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