Growth competes with the pandemic

The Turkish economy grew by 2 percent in the first quarter of 2025. The expectation in a Reuters poll for this period was 2.3 percent. Thus, the Turkish economy exhibited its weakest annual growth since the second quarter of 2020, when pandemic measures were effective.

In the first quarter of 2025, the construction and services sectors contributed to annual growth. In the first quarter, the industry and agriculture sectors contracted by 1.8 percent and 2 percent annually, respectively. During this period, industrial production pulled economic growth down by 0.4 points.

Treasury and Finance Minister Mehmet Şimşek, in his statement regarding the growth figures, said, "While our economy continues its moderate growth, disinflation continues . We are rapidly implementing the necessary measures against the effects that may arise during the disinflation process with a holistic approach and supporting investment, employment, production and exports."

SHRINK IN EMPLOYMENT

Economist Assoc. Dr. Cem Oyvat noted that the contraction in industry was clearly reflected in the unemployment rate. Oyvat said, “In April 2025, the seasonally adjusted employment rate decreased from 49.3 percent to 48.8 percent. A decrease of 0.5 points in one month is a very serious decrease. In addition, the idle labor force rate increased by 3.4 points in one month, due to the increase in part-time work, reaching its historical peak of 32.2 percent. In fact, a 2 percent annual growth in national income is very low for Turkey. This low growth has begun to show its effect on employment.”

On the other hand, Oyvat stated that the increase in the share of labor payments in national income has stopped and touched on the following:

“The ratio of labor payments to GDP, which was 35.7 percent in the last quarter of 2024, decreased to 34.5 percent in the first quarter of 2025. However, there was a general increase in the share of labor payments in national income from 2022 to the end of 2024. There are several reasons for this situation. First of all, the minimum wage increases made before the general and local elections had an impact on the national income deflator.

The appreciation of the real exchange rate and the fact that the exchange rate increase was far below the price increase in Türkiye pulled down the industrialists’ profits. Finally, there is the effect of the change in the composition of employment. In the recent period, the weight of industry, where the wage share is relatively low, has decreased, and the weight of sectors such as construction and health, where wage earners receive a greater share of the added value, has increased in employment.”

Stating that the slowdown also affected consumption, Oyvat said, “Household consumption expenditures also increased by only 2 percent compared to the same quarter of the previous year. The main factor that stands out in expenditure-based growth is construction expenditures, which increased by 6.9 percent compared to the same quarter of the previous year. On the other hand, machinery and equipment investments decreased by 1.8 percent due to the stagnation in industry. This situation also limits the increase in production capacity in the industry and pulls down long-term growth.”

“Yeni Şafak’s headline harshly criticizing Mehmet Şimşek’s administration shows that capital, which is said to be close to the AKP, has serious complaints about the program,” said Oyvat, drawing attention to the fact that industrialists are putting serious pressure on the economic administration.