Our Pulse for Turkey shows good resilience of the economy until February/March. So far, the government has not imposed a generalized lockdown therefore the supply shock is less severe than for other European economies. Besides, the Central Bank has lowered its policy rate by 200 basis points since mid-March and one third of the support program announced by the government (2.3% of GDP) has been already spent at mid-March. We expect recession to be limited to -2% for 2020 as a whole.
The Turkish economy is facing problems of a sort it has dealt with in the past: a global crisis, that will trigger a sharp fall in exports, coupled with a contraction of external financing. Unlike in 2018, Turkey’s economy does not appear to be overheating, whilst the fall in oil prices and the emergence of a current account surplus are two factors that will reduce the risk. That said, the relatively weak levels of currency reserves, the high level of external debt and the recent rise in non-performing loans are all significant risk factors. In front of the current shock, the economic policy response will have to address foreign currency liquidity needs properly in a context of dwindling capital flows.
