Turkish Economy and Covid-19

By Pinar Masat

Your commercial awareness dose

The Republic of Turkey is a transcontinental country located mainly on the Anatolian Peninsula in Western Asia, with a smaller portion on the Balkan Peninsula in Southeastern Europe. Turkey is a developing country, a regional power, and a newly industrialized country, with a geopolitically strategic location. It is the world’s 19th largest economy and 13th largest by Paycheck Protection Program.

The economy of Turkey is an emerging market economy as defined by the International Monetary Fund. The country is among the world’s leading producers of agricultural products; textiles, motor vehicles, transportation equipment. As of 2016, Turkey is the world’s largest producer of hazelnuts, cherries, figs, apricots, and pomegranates; the second-largest producer of quinces and watermelons; the third-largest producer of cucumbers, green peppers, lentils and pistachios.

But in 2020, a virus called Covid-19 changed the world of economy and business in an unprecedented way, and Turkish Economy, like the rest of the world, had a tough year due to the epidemic disaster that occurs once a century. Covid-19 has begun to affect economic activities with the channels of foreign trade, tourism and domestic demand from mid-March in Turkey and the effects were deepened and reflected to the overall economy.

Since the onset of the crisis was in the middle of March, its impact was limited in the first quarter of 2020, with a growth of 4.5% in the first quarter. The Turkish Economy contracted by 9 percent in the second quarter. After the first shock of the epidemic was over, economic activity gained momentum and national income grew by 6.7 percent in July, August and September. After starting the year at around 5,95, the dollar-lira exchange rate hit a record high in October at above 8,50. In the last two months of the year, the lira stabilized around 7,70.

Alongside the pandemic, some other external events also caused TL depreciation between 2018-2020. Firstly, Negative impact on the economy of the refugee problem created by the Syrian civil war after millions of migrants coming to Turkey. In addition, US-Turkey Relations hampering the development of S-400 crisis and Increasing tension in foreign policy (political conflicts with France and Greece, sanctions rhetoric by the USA and the EU) were the following hits to the nation’s currency. Significant reduction in the Central Bank’s gross reserves confirms how complicated the situation for the country.

With its exotic seaside cities located on the Mediterranean and Aegean and its rich history combining Ottoman and East European cultures, Turkey’s economy largely benefits from tourism. Nevertheless, the contribution from this industry to the country’s GDP narrowed significantly this year as the Covid-19 pandemic led to worldwide travel restrictions, border shutdowns, and an overall drop in consumer demand. The country generated $8.1 billion of tourism income in the first nine months of this year and welcomed more than 11 million visitors.

Beginning of the year, Turkey’s unemployment rate fell from 13.8% to 12.7% in September. In order to cope with the effects of the epidemic all over the world, policy makers are implementing various practices. The measures taken to limit the economic and financial impacts of the coronavirus were respectively announced on 17 March, 31 March and 17 April 2020.

Four main objectives were focused. It includes providing flexibility to banks in Turkish lira and foreign currency liquidity management and ensuring uninterrupted continuation of credit flow to the real sector and to support exporter companies. The remaining objectives are supporting the cash flow of exporter companies with rediscount loan arrangements and strengthening the monetary transmission mechanism by supporting the government securities market liquidity.

However, there are some good news for Turkey as well. As of 29 December 2020, the UK had secured 34 trade agreements with 91 people countries, and Turkey is the one of the countries. With the agreement, Turkey and the UK will be prevented in the possible emergence of financial losses in trade between the two countries. The trade deal covers the goods worth of nearly $16 bn., which might be a good place to boost the Turkish economy.