Turkey’s economy is losing steam. In the first quarter of 2025, annual GDP growth dropped to just 2 percent – a slowdown from 3 percent last year and 5 percent in 2023.
The country’s four-quarter growth average now stands at just 2.4 percent, less than half of Turkey’s historical growth norms.
Yet more concerning is the fact quarterly growth has exhibited signs of increased volatility, signalling a lack of steady momentum across sectors.
Unemployment officially stands at 8.4 percent. However, the broader measuring stick of “underutilised labour”, which includes part-timers seeking full-time jobs and those marginally attached to the labour force has surged to 32.2 percent.
This trend reflects widespread hidden joblessness and chronic underemployment, particularly among youth and women.
A lopsided recovery
Sectoral breakdowns reveal further cause for concern. In the first quarter, construction grew by 7.3 percent, propped up largely by post-earthquake (2023) rebuilding in the south. Yet, this momentum masks stagnation elsewhere. Industry shrank by 1.8 percent and agriculture contracted by 2 percent.
The growth figures point to Turkey’s structural distortion. Productive capacity is not expanding. Investment in machinery and equipment has either stalled or declined, while fixed capital formation is concentrated in concrete-heavy sectors.
Much of this investment lacks long-term productivity-enhancing potential, especially in tradable or technology-intensive industries.
This pattern mirrors earlier episodes in Turkey’s economic history, such as the early 2010s, when construction-led growth produced temporary booms but failed to address external imbalances and productive capacity.
The reliance on construction raises questions about Turkey’s long-term structural prospects.
Rather than driving innovation or export competitiveness, recent growth has leaned on a short-term infrastructure boom. This not only distorts capital allocation but also leaves the economy more vulnerable to interest rate shocks and exchange rate volatility.
Financialisation over fundamentals
At the heart of this imbalance lies Turkey’s commitment to a neoliberal policy model, currently steered by finance minister Mehmet Şimşek.
This model has systematically undermined real wages, weakened labour protections and sharpened income inequality.
Turkey is firmly embedded in the global trend of extreme financialisation. This refers to the increasing dominance of financial motives, markets and institutions in shaping economic outcomes, often at the expense of labour and production.
In Turkey’s case, the emphasis on attracting portfolio inflows has prioritised short-term capital over long-term industrial development.
This has created a perverse incentive structure where speculative gains outperform productive investment. As a result, workers have battled stagnant wages amid rising costs, while corporate interests and financial elites have captured a disproportionate share of economic gains.
Current policies have favoured capital concentration over broad-based opportunity. As a result, purchasing power is eroding and household insecurity continues to rise.
With a career built in international finance and treasury roles, Şimşek’s expertise is heavily market-oriented.
Yet the country’s current challenges demand deep structural reform, industrial capacity, quality employment and public investment, requiring a broader economic toolkit.
Rethinking growth
The pressing question is no longer how much the economy grows, but “how” and “for whom.” A model based on low-value-added construction and speculative finance cannot deliver the structural transformation Turkey needs.
What is urgently required is a strategic pivot toward industrial renewal, science-driven innovation and equitable development.
Turkey must prioritise education, technological capacity and green infrastructure over short-term stimulus and capital inflows. Without this reorientation, Turkey’s economy remains vulnerable to external shocks and may miss out on opportunities for sustainable transformation.
With machine and equipment investment slowing and inflation still elevated, the path forward looks precarious.
Without a strategic shift toward inclusive growth and innovation, Turkey risks locking itself into a cycle of stagnation and inequality that will be increasingly difficult to escape.
Arda Tunca is an economist and financial adviser based in Bodrum, Turkey
