OECD Economic Surveys: Turkey 2021
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After initial success in fighting the COVID-19 pandemic and a strong economic rebound, Turkey faces a resurgence of cases which puts pressure on the country’s health system, public resources, social cohesion and macroeconomic sustainability. Public finances offer room for government support to the households and businesses most in need, but this should be provided under a more transparent and predictable fiscal, quasi-fiscal, monetary and financial policy framework. In the early phases of the pandemic, shortcomings in the macroeconomic framework weighed on market confidence, creating tensions in risk premia, capital movements and exchange rates, which complicated macroeconomic policy responses to the crisis. New demands and opportunities also arose for structural change in the business sector. Product, labour and capital market reforms, bundled with a comprehensive upgrading of vocational education, would accelerate the much needed formalisation of business activities, the re-balancing of firm balance sheets with external equity capital, and a broad-based digital modernisation. A stronger, more sustainable and more inclusive post-COVID growth trajectory would then be within reach.
SPECIAL FEATURE: UNLEASHING THE FULL POTENTIAL OF THE BUSINESS SECTOR
Also available in: French
Executive Summary
The impact of the pandemic on economic activity unfolded later than in other countries in the region, but was sharp. Turkey managed to contain the number of COVID-19 cases relatively effectively in the first phase of the outbreak, thanks to a strong intensive care infrastructure and targeted lockdowns. Cases however surged again after the easing of containment measures in June and continued to increase sharply in Fall. Employment and aggregate demand contracted strongly in the first wave, then rebounded following vigorous government support. However, they are again facing headwinds. Tourism and hospitality sectors, which generate high demand for other products and services and provide employment across many regions, are particularly affected. The authorities have provided ample quasi-fiscal support to safeguard corporate liquidity, employment and incomes of households. The Central Bank flanked these measures with a more expansionary monetary stance and financial policies promoted massive credit expansion. The government began to scale down these measures after an increase in the current account deficit and inflation, a weakening in investor confidence and a sharp exchange rate depreciation between July and October.
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