The Organisation for Economic Co-operation and Development (OECD) on Thursday commended Türkiye for its progress in reducing inflation and narrowing its current account deficit, while urging the country to stay the course with disciplined macroeconomic policies and ambitious structural reforms to ensure long-term growth.
In its latest Economic Survey of Türkiye, the OECD forecasts moderate growth, with gross domestic product (GDP) expected to rise by 3.1% in 2025 and 3.9% in 2026. Inflation, though still elevated, is projected to ease to 17% by 2026, continuing its downward trend.
"Maintaining tight monetary policy and fiscal discipline will be key to ensure sustainable economic convergence with other OECD countries and a continued decline in inflation towards the 5% target," OECD Secretary-General Mathias Cormann said during the presentation of the survey in Istanbul.
"Strengthening fiscal discipline will require structural reforms to improve spending efficiency and optimise tax revenues," Cormann said alongside Türkiye's Treasury and Finance Minister Mehmet Şimşek.
Since after the May 2023 elections, Türkiye has been implementing an economic program centered around tight monetary policy, mainly aimed at curbing stubborn inflation, shifting to more conventional policymaking from years of loose policy.
Annual inflation slowed to 38.1% in March. It marked the lowest since December 2022 and extended the fall from a peak of around 75% last May. It is expected ease to 31.4% by the end of 2025, according to the OECD. The central bank's year-end inflation estimate currently stands at 24%.
The Turkish central bank has initiated an easing cycle and cut its policy rate to 42.5% gradually in the past three scheduled meetings. Before that, it raised the rate by 4,150 basis points to cool inflation.
The tighter financial conditions and restrictive policies are likely to weigh on household consumption and overall economic activity over the next two years, the OECD cautioned.
Türkiye's public debt to GDP ratio remains relatively low, it said, while the budget deficit is expected to narrow to 2.6% in 2026. According to the government's medium-term program, the current account deficit-to-GDP ratio is projected to be 2% this year.
According to the report, the Turkish economy has been one of the fastest growing in the OECD over the past decade, expanding at an average annual rate of 4.9%.
Living standards have nearly quadrupled during this period, while notable gains have been recorded in labor market participation and social indicators. Labor force participation among people aged 15-64 rose from around 50% in 2005 to 60% in 2023, and the poverty rate was halved.
Stressing the dynamism of the Turkish economy, the OECD noted that reducing bureaucratic hurdles, particularly in the services sector, could further unlock business potential. Professional services in Türkiye are among the most heavily regulated in the OECD, the report says, which hinders productivity along the value chain.
"Easing restrictions and regulations in services, including limits to foreign participation, would promote business dynamism, services exports and foreign direct investment," the Paris-based organization said.
Another key challenge lies in workforce productivity, the report said. The OECD said it had observed that growth in output per worker has been losing momentum.
"The Turkish economy remains specialised in medium-technology sectors and needs to boost competitiveness in high-skilled manufacturing and services," it said. "Upward integration in global value chains will require better diffusion of innovation and workforce upskilling to enable companies to gain a competitive edge in international markets."
It also said the economy would also benefit from higher employment rates, notably of women.
Women's participation in the labor force in Türkiye lags behind that of other OECD countries. The report recommended policies such as expanding preschool education, increasing child-related benefits, and lowering the effective tax burden on parents. Reducing social security contributions for low-income earners could also improve job participation and cut informality, it added.
On the environmental front, the OECD warned that Türkiye's greenhouse gas emissions, although currently low, are rising quickly. It said current policies fall short of the government's target of net-zero emissions by 2053.
"Reducing emissions will require higher effective pricing of greenhouse gas emissions and transitioning away from coal for energy supply," the report said. "Climate change adaptation policies should also expand to address risks created by rising temperatures, for example high costs from wildfires."
