Türkiye
Highlights
- Economic activity has moderated amid a rebalancing of the drivers of growth. Monetary, fiscal and income policies were all tightened in the first half of 2024 and inflation, which remained high in the first 10 months of the year, has begun to fall.
- The return to economic orthodoxy since June 2023 and Türkiye’s removal from the Financial Action Task Force (FATF) grey list helped boost investor confidence and improve the country’s external position. Positive developments in 2024 include a decline in Türkiye’s credit default swap (CDS) premium, favourable sovereign Eurobond issuances, rating agency upgrades (the first in over a decade), a pick-up in portfolio inflows and enhanced international reserve buffers.
- The authorities announced a series of programmes, plans and strategies. The 12th Development Plan 2024-28, the Foreign Direct Investment (FDI) Strategy 2024-28 and the second National Energy Efficiency Action Plan (NEEAP) for 2024-30 all aim to drive economic growth, enhance innovation and promote green and digital transformation.
Key priorities for 2025
- Price stability should remain the cornerstone of economic policy and growth. Achieving price stability is crucial in order to enhance the business environment and improve societal welfare. Strengthening the effectiveness of the monetary policy transmission mechanism is vital for controlling inflation, while close alignment of fiscal and monetary policy will be essential in this endeavour.
- A sustainable external balance can be achieved through structural reform. Reforms are needed to drive the twin green and digital transitions, which will boost Türkiye’s participation in global value chains. Aligning with EU green regulations, boosting the productivity of export-oriented sectors and increasing regulatory transparency and predictability are necessary to promote private-sector development.
- Leveraging the untapped potential of Türkiye’s human capital is essential for economic growth. Policies that enable greater participation of under-represented segments of the labour force should be prioritised, alongside efforts to address regional disparities, which are essential to fostering inclusive economic development.
Main macroeconomic indicators (per cent)
| 2020 | 2021 | 2022 | 2023 | 2024 proj. | |
|---|---|---|---|---|---|
| GDP growth | 1.9 | 11.4 | 5.5 | 5.1 | 2.7 |
| Inflation (average) | 12.3 | 19.6 | 72.3 | 53.9 | 59.0 |
| Government balance/GDP | -5.1 | -4.0 | -1.7 | -5.2 | -4.9 |
| Current account balance/GDP | -4.4 | -0.9 | -5.3 | -4.0 | -1.7 |
| Net FDI/GDP [neg. sign = inflows] | -0.6 | -0.8 | -1.0 | -0.4 | -0.3 |
| External debt/GDP | 56.3 | 56.0 | 52.5 | 46.6 | na |
| Gross reserves/GDP | 13.0 | 13.4 | 13.6 | 11.0 | na |
| Credit to private sector/GDP | 64.8 | 60.8 | 52.4 | 44.2 | na |
Macroeconomic developments and policy response
Economic growth and inflation started to slow in 2024 amid significant monetary and fiscal policy tightening. In the first half of 2024, real gross domestic product (GDP) grew 3.8 per cent year on year, primarily driven by private consumption, although its contribution to overall growth declined slightly. The economy grew by 5.3 per cent year on year in the first quarter of 2024, but growth slowed to 2.5 per cent year on year in the second quarter, as the industrial sector, services and construction contracted due to tighter policy and credit conditions. Meanwhile, the Central Bank of the Republic of Türkiye (CBRT) continued to hike the policy rate, which now stands at 50.0 per cent, compared with 8.5 per cent in May 2023. Moreover, to enhance monetary policy transmission, the CBRT employed macroprudential measures, including sterilisation tools and credit growth caps. Still, inflation remains high, averaging 61.8 per cent in the first 10 months of 2024. Annual inflation has been declining since its peak of 75.4 per cent in May 2024. To support disinflation, fiscal policy was tightened (except for earthquake-related spending), with the central government deficit narrowing to 4.0 per cent of GDP in the first half of 2024 from 4.7 per cent a year previously.
External deficits have narrowed and the return to orthodox economic policy has boosted investor confidence. The 12-month cumulative current account deficit declined to US$ 11.3 billion (€10.2 billion) in August 2024 from a peak of US$ 55.6 billion (€51.1 billion) in May 2023. As a percentage of GDP, the deficit decreased to 1.7 per cent in the first half of 2024, driven by lower energy and gold imports, from 5.0 per cent in the first half of 2023. At the same time, capital flows accelerated following the March 2024 elections, with the 12-month cumulative net portfolio flow reaching US$ 22.2 billion (€20.2 billion) in August 2024. However, FDI remains low, with the 12-month cumulative inflow standing at US$ 10.5 billion (€9.6 billion) in August 2024, equivalent to less than 1 per cent of GDP. Meanwhile, the return to policy orthodoxy led to a decline in Türkiye’s CDS premium from over 700 basis points in May 2023 to close to 270 basis points. And, after more than a decade of downgrades, credit rating agencies have upgraded Türkiye’s rating in 2024, with Fitch Ratings raising it twice, to B+ (in March) and then BB- (in September), S&P Global to B+ (in May) and then to BB- (in November) and Moody’s to B1 (in July).
International reserves improved significantly following the March 2024 elections and the currency strengthened in real terms. By September 2024, reserves had increased sharply to US$ 152 billion (€136 billion) (from a low of US$ 97 billion [€89 billion] in May 2023), covering five months of imports. Notably, net reserves (excluding swaps) turned positive for the first time since March 2020, reflecting a real improvement in the composition and quality of reserves. The currency has depreciated by 42 per cent since May 2023 and by 15 per cent since the beginning of 2024. In real terms, however, the Turkish lira (TRY) has appreciated 29 per cent since July 2023, adversely impacting the competitiveness of Turkish exports and tourism but helping disinflation efforts.
The authorities face the challenge of balancing disinflation with macroeconomic stability. While monetary and income policies are currently contractionary, the fiscal stance, including earthquake spending, is still expansionary, so fiscal discipline is essential to support disinflation while effectively managing the earthquake recovery. In 2024, real GDP growth is forecast to slow to 2.7 per cent from an upwardly revised rate of 5.1 per cent for 2023, then pick up to 3.0 per cent in 2025. Key risks to the outlook include persistently high inflation, the impact of the real TRY appreciation on exports and tourism, ill-timed easing of the policy stance, high regional geopolitical tensions and tight global financing conditions, especially given Türkiye’s high short-term external financing needs. On the positive side, the absence of any scheduled elections until 2028 offers the authorities an opportunity to implement structural reforms.
Structural reform developments
Important reforms are under way. The authorities announced two medium-term plans: the 12th Development Plan 2024-28 in November 2023 and the updated three-year rolling Medium-Term Programme (MTP) for 2025-27 in September 2024. The 12th Development Plan aims to drive long-term economic and social progress, focusing on innovation, green and digital transformation, and social inclusion. It aims to increase GDP to US$ 1.6 trillion (€1.4 trillion) and GDP per capita to US$ 17,554 (€15,908) by 2028 from US$ 1.1 trillion (€1 trillion) and US$ 12,415 (€11,251), respectively, in 2023, with an emphasis on advancing exports in target sectors. It also prioritises urban transformation, environmental sustainability and governance reforms. The updated MTP forecasts lower economic growth and higher inflation than the previous MTP (2024-26), while projecting improvements in the budget deficit and current account. It cut growth projections by 0.5 percentage points and revised up end-year annual inflation to 41.5 per cent in 2024, 17.5 per cent in 2025 and 9.7 per cent in 2026. To meet these objectives, the MTP sets out seven key reform areas: enhancing macroeconomic and financial stability, reforming public finance, boosting research and innovation, transitioning to a green and digital economy, developing human capital, improving the business and investment climate, and reducing the informal economy.
The 2024-28 FDI Strategy was launched in August 2024. It aims to increase Türkiye’s share of global FDI to 1.5 per cent and its regional share (across the Middle East, North Africa and eastern Europe) to 12 per cent from 0.9 per cent (2003-23) and 9.8 per cent (2004-23), respectively. The strategy builds on Türkiye’s position as the second-largest FDI recipient in the region, having attracted US$ 261 billion (€214 billion) over the past two decades. Key policy areas include promoting renewable energy, simplifying processes, enhancing digital infrastructure, improving logistics and developing a skilled workforce. The strategy emphasises green and digital transformation to attract sustainable, technology-driven investments, focusing on eight priority areas, including climate-friendly, digital and knowledge-intensive sectors.
The government has introduced a strategic initiative to establish Türkiye as a hub for high-tech investments by 2030. The HIT-30 programme, launched in August 2024, offers US$ 30 billion (€27 billion) in project-based incentives and financing options, focusing on new technologies, economic scale, technical competence and technological acquisition. Six major investment initiatives were announced, including US$ 5 billion (€4.5 billion) for electric vehicle production, US$ 4.5 billion (€4.1 billion) for battery production and US$ 5 billion (€4.5 billion) for chip production. Significant incentives for green energy investments – US$ 2.5 billion (€2.3 billion) for solar and US$ 1.7 billion (€1.5 billion) for wind energy – also feature. These efforts aim to attract at least US$ 20 billion(€18 billion) in private-sector investment.