The Turkish economy challenge the new pressure after the earthquake
After relying on the generosity of some wealthy partners to improve its economic conditions, Türkiye must now face the repercussions of the earthquake that destroyed dozens of cities on February 6, leaving millions of people homeless and unemployed.
Türkiye will now have to allocate billions of US dollars for the reconstruction of 11 provinces in the south and southeast, which have been massively devastated by the worst disaster in the country’s contemporary history.
Likewise, President Recep Tayyip Erdogan promised to give millions of Turkish liras to the affected citizens, with the upcoming presidential and legislative elections scheduled for May 14th.
Pumping all these sums may stimulate consumption and industrial production, which are two main indicators of economic growth, but the reality is that Türkiye is suffering from a shortage of funds.
Türkiye was able to reconfigure the central bank’s reserves after they were almost depleted, thanks to the help of Russia and the Arab Gulf states.
However, economists explain that this money is hardly sufficient to maintain Turkish finances and prevent the lira, which is in a difficult situation, from collapsing, until the election date, if it’s not postponed.
However, Erdogan is now obliged to repair damages worth about 78.9 billion Euros, according to estimates by a group of heads of major companies, while estimates by other experts are close to 9.4 billion US dollars.
In anticipation of the elections, Erdogan promised to provide new housing for the millions of affected people within a year.
And if he manages to save money thanks to new foreign donors, the Turkish president will have to allocate a large part of it to the construction sector in order to rebuild entire parts of the country that were completely demolished.
Erdogan has always relied on this sector, which is now being accused of being responsible for the collapse of many residential buildings as a result of violating earthquake-resistant construction standards.
Real estate development was instrumental in modernizing much of the country, opening airports, building roads and building hospitals.
The European Bank for Reconstruction and Development considered that reconstruction work may compensate to a large extent for the negative impact of the earthquake on economic activity.
Before the earthquake, the affected region contributed to the Turkish economy at a level of 9% of the gross domestic product, especially through major industrial zones in Gaziantep and the port of Iskenderun, through which the products of the region exported to the world pass.
Likewise, the shock will affect agricultural production.
Pro. Unai Tamgak, professor of economics at Top University of Economics and Technology in Ankara, pointed out that the region provides 14.3% of Türkiye’s agricultural production, including hunting and forestry products.
The United Nations Food and Agriculture Organization (FAO) warned of disruption in basic food production in Türkiye and Syria.
The earthquake also affected the energy and transportation infrastructure, as well as irrigation canals.
Some look back, trying to find a model to follow.
At that time, the Turkish economy lost 0.5 to 1% of the gross domestic product, as the earthquake affected the industrial heart of Türkiye, including its economic capital, Istanbul.
However, the economy rebounded quickly and, from the following year, recorded a growth of 1.5% of GDP, thanks to reconstruction efforts, according to the European Bank for Reconstruction and Development.
According to a note shared by Wolfango Piccoli, an analyst at the Teneo Consulting Office, the tourism sector, which “has become one of the main sources of foreign exchange for Türkiye,” will remain relatively unharmed, as the stricken region isn’t the first destination for foreign tourists in the country.
“It’s clear that Türkiye will need foreign currencies, as Türkiye will have to increase imports,” Baki Demirel, professor of economics at Yalova University said.
However, the Turkish government has room to manoeuver, as the Turkish sovereign debt is relatively weak.
On the other hand, foreign investors are boycotting the country because of Erdogan’s economic policy, which contradicts the traditional approach, which stipulated regular lowering of interest rates, which caused a sharp rise in inflation.
At the time of disaster, Türkiye had just announced an official inflation rate of 58%, compared to more than 85% at the end of 2022.
However, experts agree that Türkiye is facing headwinds that may hinder its growth this year.