eco TV Week

Turkey: Resilience ahead

6/5/2020

The Turkish economy has grew during the 1st quarter, but will not avoid a GDP contraction in 2020 as a whole. Nevertheless, Turkey’s growth should be among the best performances in Emerging Markets in 2020.

Stéphane Colliac

TRANSCRIPT // Turkey: Resilience ahead : June 2020

The Turkish economy was able to grow during the 1st quarter, despite the impact of the Covid-19. Growth eased somewhat to +0.6% in Q1 compared to Q4. This is a valuable performance, since many Emerging Markets entered into recession in parallel from Q1 2020. However, this does not mean that growth did not enter into negative territory.

Indeed, during the 1st quarter, GDP growth was high during January and February, and then eased markedly in March as shown by industrial production and retail sales indicators. A part-time lockdown was introduced and plants were closed. The economic shock has even reinforced in April, as Turkish exports went down by -41.8% from a year earlier, after a lower deterioration in March with -18.3% yoy.

Nevertheless, such a freefall in April should not over interpreted despite its wide extent. During the World great recession in 2009, the throw was reached with a -58% export drop. The size of the shock can also be described through its duration. In 2009, the Turkish GDP had continuously declined during 4 quarters. In 2020, as the lockdown already eased in May, we should see a shorter duration of the shock: about 3 months.

So, we should not be over-pessimistic. Indeed, there are downside risks to our forecast of -2% growth in 2020, made before the publication of the Q1 figure, but this performance can still be reached. So, GDP contraction should be lower than the -4.7% registered in 2009.

The economic shock currently materializing should have a key impact, particularly on unemployment. However, economic policy has been widely used in order to smooth this impact. Monetary policy first, through key policy rates easing and direct government bond purchases on the secondary market. Fiscal policy was timely used, since public consumption increased by +13.4% in volume yoy during the 1st quarter, a strong acceleration of fiscal spending.

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