Turkey emerges from difficult economic time as real sector remains affected

The economy started to recover in early 2019 though challenges persist – investment has declined, prices have remained elevated, and unemployment has increased.

The World Bank issued today its new Turkey Economic Monitor (TEM), which takes stock of recent economic developments and provides the World Bank’s analysis of economic prospects in Turkey. 

Turkey has emerged from a difficult economic period though the real sector remains deeply affected. Over the past twelve months, narrowing current account imbalances, declining external debt of banks, and global monetary easing has helped reduce external risks. The economy started to recover in early 2019 though challenges persist – investment has declined, prices have remained elevated, and unemployment has increased. These factors have hurt households, and poverty may increase slightly in 2019, before declining gradually over the forecast period.

“Poorer households have been the most impacted because many low-income workers are employed in construction and agriculture - the sectors that saw the biggest decline in jobs,” said Auguste Kouame, World Bank Country Director for Turkey. “The long-term impact of unemployment is greater for the poorest households since they have limited coping mechanisms.”

Looking ahead, the pace and sustainability of Turkey’s incipient recovery will depend in part on reducing uncertainty and restoring investor confidence. The TEM projects no change in GDP in 2019, with growth picking up to 3 and 4 percent in 2020 and 2021 respectively. The Bank analysis also underlines that Turkey needs to strengthen external buffers to reduce market pressures. 

“The TEM looks at near term policy options that may help sustain economic recovery in Turkey. These include measures to support corporate deleveraging, deal with distressed assets in the banking sector, and use available fiscal space effectively to boost demand” noted Habib Rab, Program Leader in the World Bank Turkey Office.