Growth has been robust in recent years despite very adverse regional and domestic conditions. Job creation has been strong, in particular for vulnerable groups and less developed regions. Turkey is no longer experiencing "boom-and-bust" cycles, but external deficits expanded and the net external investment position has deteriorated somewhat over the past decade. To achieve strong and sustainable growth, domestic saving should be increased and demand rebalanced between domestic and external sources. The needed competitiveness gains must be achieved by reducing wage and price inflation and boosting productivity growth. Following a period of stalling reform progress, the authorities launched an ambitious economic reform agenda in early 2016 aiming at raising productivity and living standards. Turkey's manufacturing sector has expanded considerably, but a core of well performing firms is st i l l hindered by shortcomings in the policy framework. A second category of firms sustain competition and deliver jobs, but have fallen behind in productivity. A large, third group of firms employ many low-skilled workers, but have lowproductivity and survive in an "informality trap" due to ineffective enforcement of rules and regulations. Improving this situation requires a comprehensive upgrading of the business environment to boost productivity and allow the most promising firms to grow faster.