With a positive growth performance compared to the world countries in 2020, our country is expected to be one of the 30 countries in the world that closed the year with positive growth.

Before focusing on Turkey’s 2021 and 2022 growth estimations, it would be more beneficial to analyse its near-term growth performance since 2018. Turkey’s economy grew by 7.5 and 5.8 per cent in the first two quarters respectively before the exchange shock in August 2018, and after this shock, the economy grew by 2.5 per cent in the third quarter and contracted by 2.7 per cent in the last quarter. This contraction that started in the last quarter continued in the first half of 2019; the economy narrowed by 2.6% in the first quarter, 1.7% in the second quarter, showed the first growth of 1% in the third quarter and grew by 6.4% in the final quarter. In short, following the exchange shock in 2018; the economic growth underperformed with 3% in 2018, and 0.9% in 2019 on a yearly basis.


Gradually overcoming the effects of the exchange rate shock of 2018 as of the last quarter of 2019, our economy entered 2020 in quite a positive mood, growing by 4.5% in the first quarter of the year. This performance was expected to increase gradually for the rest of the year. However, with the first cases of the novel coronavirus (Covid-19) starting to appear in Turkey in March, leading to the first lockdown, our economy shrank by 9.9% in the second quarter subsequently. In the third quarter, the economy could grow again by 6.7% when quarantine measures were loosened and policies encouraging credit growth were adopted. What really affected this growth was the increase in investment expenditures by 22.5%, which showed a positive growth in the second quarter of 2018 and have been shrinking since that period, and the increase in household consumption by 9.2%.


Due to the exchange rate shock in the second half of 2018 as well as the pandemic appearing at the end of the first quarter of 2020, our economy performed under its growth potential in the last three years. Having a positive growth performance in 2020 compared to the world countries, our economy is expected to be one of the 30 countries in the world and one of 2 countries among the G20 to close the year with positive growth. Although the growth rate is cautiously estimated to be 0.3 per cent in the announced Medium Term Program (2021-2023), especially the positive performances of leading indicators such as industrial production and PMI, and export volume reaching 50 billion dollars in the last quarter shows that annual growth will exceed 1 per cent, achieving nearly 1.5 per cent.


Among the growth estimates for 2020, the EU Commission has made the lowest estimate among international organisations. This estimate, made in November 2020 and predicting that our economy will contract by 2.5 per cent in 2020, is deemed to be unrealistic. The fact that the estimate was made in September shows that our economic performance, which grew by 6.7% in the third quarter, our industrial production in the last quarter of the year, leading indicators such as PMI and the positive performance of our exports were not taken into account. Considering all these developments in the last quarter, the 2020 economic growth is expected to be between 1 to 1.5%, which are also closer to the predictions of other international organisations.

The IMF (International Monetary Fund) stands out as the international organization that predicts our growth performance the highest for 2021. The IMF expects our economy to grow by 6% in 2021, which is above the growth estimate of 5.8% in the Medium Term Program. The lowest growth rate was estimated by the OECD (Organisation for Economic Cooperation and Development) as 2.9%. Again, the fact that this estimate was made in September shows that it did not include the recent positive developments. It is a fact that our economy has grown below its potential for the last three years due to the exchange rate shock in the second half of 2018 and the pandemic appearing all over the world in 2020. This implies that consumers delay their consumption expenses and companies delay their investment expenses.


With the positive results that we will get from the vaccines developed against the virus and the gradual loosening of the measures, our economy will enter a rapid recovery period after the first quarter. With the high growth expectation in our main export markets, especially in Europe, the introduction of the upcoming delayed consumption and investment expenditures, the recovery in the tourism sector after the effects of the pandemic starting to decrease in the summer months and finally with the base effect of the low growth in 2020, our economy is expected to grow over 5%, even 6% in 2021. In this sense, the IMF’s estimates and the growth expectations included in the Medium Term Program seem to be more realistic.


Looking at the figures for 2022, we see that the highest growth estimate belongs to the World Bank and Medium Term Program as being 5%. However, what will determine the growth performance of 2022 is our performance in 2021. The rapid introduction of consumption and investment demand that was postponed to 2021 will cause 2021 to grow above its potential. However, it is also possible that there will be some slowdown in 2022 due to the high base of 2021 and the majority of the deferred consumption and investment demand will come into effect in 2021. If the growth of 2021 is realised above 5%, it can reduce the growth in 2022 to the level of 5%.

On the other hand, if the recovery in 2021 does not come as expected, the growth rate we estimate for 2021 may be seen in 2022. In other words, the expected recovery in 2021 will be delayed to 2022. In this case, if the growth rate estimated for 2021 remains below 5%, the growth estimates for 2022 may exceed our potential growth to be above 5%.


The biggest risk on our economic activity will be the course of the pandemic and the measures taken against it. Our increased hopes for vaccination in the last month of the year caused all of us to look at 2021 in a more positive light. The economic activity is expected to recover as of the second quarter of 2021. However, if the pandemic lasts longer than expected and restrictions continue accordingly, production and consumption activities will be adversely affected, and it will be a serious risk factor on the estimated growth figures. On the other hand, the delays in the recovery in our main export markets, especially in the European Union (EU) and in global economic activity in general, may negatively affect the growth performance of our country’s economy, especially in exports. Another risk area for 2021 is our political and economic relations in the international arena. In particular, the EU and the United States of America (USA), which will have a new President in the new year, will be closely monitored for how they view Turkey.


Finally, the combination of expense items that make up the Gross Domestic Product (GDP) is as important as the growth performance in terms of a healthy and sustainable growth. While foreign demand has had a negative impact on growth in 2020, this negative impact is expected to decrease in 2021. We are hopeful that we will achieve a 4% growth in the European region, which is our biggest export market especially in summer months with the increase in tourism incomes after the pandemic is taken under control. It is also considered that limits have been reached in the growth sources created by domestic credit expansion in 2020. Steps taken by the Central Bank of the Republic of Turkey (CBRT) and the Banking Regulation and Supervision Agency (BRSA) are directed towards financial tightening. 2021 and 2022 growth are expected to be export-oriented, rather than domestic credit expansion.

DEİK Chief Economist Hakkı Karataş