Impact of covid-19 lock down on Turkey

Turkey before pandemic

Turkey is 19th largest economy in the world, with $ 771 billion GDP. Its export destinations are Germany (9%), UK (6.3%), Italy (5.4%), Iraq (5.2%) and the US (4.7%). And the top import origins are Russia (11.1%), China (9.1%), Germany (8.9%), the US (5.5%) and Italy (4.2%) [27]. so the lock-down will also affect the other associated economies. Turkey is struggling with unemployment since 2018 at rate of almost 13%. Obviously due to lock down impacts it will increase further and ultimately would drop GDP and incomes.

Covid-19 is a humanitarian problem. It’s causing economic fallout in all over the world. Turkey confirms its first case of covid-19 on 11 march 2020. Following the prevailing popular belief that “less restrictive approaches would be more economical”. They impose in between full and partial lockdown (a mix of two). This lockdown leaves following impacts on the economy of Turkey.

Retail Market

Lock down adversely put pressure on retail market. Although most of the market is running online, however some physical retail markets are in hot soup. They are uncertain about leasing agreements. As, a few Turkish brands (mostly fashion brands) stop online sales to minimize the risk for staff and customers. The sales have increased by 183% in 8 weeks of lock down as compared to the same period during last year according to the data provided by Nielsen.

Consumption and supply patterns

Lock down declines the demand and supply patterns. Decline in consumption is because 1. People are avoiding shopping due to fear of virus 2. People are focusing on savings and less consumption due to uncertainty of pandemic 3. Loss of incomes due to less production. Decline in supply patterns is because 1. Labor drop out 2. Non-essential sectors shut down 3. Less production

Hospitality Industry

Hospitality industry is a bit different from tourism. Hospitality sector include those goods and services which are linked to leisure and amusement beyond the basic necessities. Impact on this industry is greater than the other sectors. Due to travel restriction hotel occupancy decline about 28.6% across Turkey. There is ultimate decline in revenues.

Contraction in GDP growth

Some credit rating companies estimated GDP contraction of Turkey due to lock down.

ü Oxford economies estimated 5.1% decline

ü Standard & poor estimated 3.1%

ü IMF estimated about 5%

ü Moody’s estimation is almost 5%.

Foreign Reserves and Depreciation

As we discussed Turkey was not in a stable position before lock-down. Turkey’s reserves were amounted to $ 77.4 billion at the end of February however according to IMF the requirement was about $ 170 billion. Now in lock-down reserves are still in decreasing trend. This will affect currency’s value, international sales, and ultimately economic growth.

If we talk about depreciation, than lira was already in crisis from 2018 to 2019. And again in this year dollar has gain 13% on Turkish note.

Tourism

Turkey is 6th most popular tourist destination in the world. 50 million foreigners visit Turkey last year. Turkey earns almost $ 34.5 billion revenues from tourism sector and expected to grow further. Then covid-19 hit Turkey. Tourism evaporation is one of the major causes of budget deficit of Turkey.

Investment

Obviously there is uncertainty for the investors. Risk is higher due uncertain period of pandemic. Current situation of economic confidence index is below. Consumer confidence in Turkey underwent a notable decline, particularly starting from January 2019. In April 2020, over the period of time in display, Consumer Confidence Index (CCI) in Turkey was the lowest in April 2020, at an index value of 54.85.

Financial burden

Turkey’s government introduced economic stimulus package of $ 15.4 billion on 18 mar. It also includes tax cuts, deferred payments, rent holidays and increase in pensions to help people. Also Turkey has large refuge population (Syrians). Thus, government has to bear financial burden to protect people.

Conclusion

Turkey is on shaky grounds. They have been suffering from weak currency, high debts, dwindling reserves and growing unemployment.

“There will be hard times ahead, because Turkey was already at a macroeconomic vulnerability position before virus hit”.

Can Selcuki (director of Istanbul economic research) told CNBC on Monday.