The current earthquakes seen in Turkey are a devastating event that will have ramifications in all sectors of life. In this blog we will be discussing the economic impact. The recent 7.8 earthquakes in Turkey will significantly impact the Turkish economy, which will ripple throughout the world economy. Turkey has the 19th largest economy in the world at nearly 1 trillion USD. Economic consequences of this disaster are seeming to be high inflation, a collapsing stock market, and a devastated agricultural sector.
The earthquake itself have created large physical catastrophe. Recently, the Turkish Enterprise and Business Confederation estimates that the cost to rebuild will be between 10 to 50 billion USD. Over 8,000 buildings, roads, and seaports were destroyed, which will limit their supply chain for exports. This physical destruction on top of the growing number of lives lost, leaving the state in a social tragedy of grieving along with a smaller workforce.
To understand the impact, we need to understand where Turkey stood economically before the disaster. Before the earthquakes, Turkey’s inflation had slowed to around 60% from a previous high of 80%. Inflation had been ravaging the countries for years, as the Turkish Prime Minister Erdogan cut interest rates, which fueled more inflation. This has seriously undervalued the lira (the currency in Turkey). The lira recently hit all-time lows of almost 19 lira to a dollar. Devaluation makes it more difficult for Turkey to bring in foreign investors, who will charge a higher premium to account for increased risk. Rising devaluation, higher premiums, and the 185 billion dollars in debt that Turkey owes raise the fear that the Turkish economy could risk collapse.
Now, after the earthquake, certain industries are at an even higher risk, particularly Turkey’s agricultural and industrial sectors. The impacted provinces in Turkey account for nearly 15% of their agricultural output and 9% of their industrial output. The European Bank for Reconstruction and Development believes Turkey could lose up to 1% of their GDP. Growth for Turkey was projected to be 3.5%, and now it is down to 3%. There could be a ripple effect throughout the world economy as Turkey is a leading provider of several fruits, including apricots. Along with agriculture and industrial output, tourism is an essential part of the Turkish economy. This sector is also expected to take a big hit as many popular tourist spots are no longer accessible.
Immediately after the earthquakes, the Turkish stock exchange lost about 3.9 billion dollars' worth of value before the government closed the stock exchange, raising questions about the sentiment of foreign and domestic investors. However, the economy does have some hope, especially after they have began reopening. Their stock market is up 10% since reopening. This can be seen with Turkey's biggest companies, including Sasa Polyster, Ford Otosan, and Koç Holding. Each of these businesses saw a drop in stock during the disasters, and are now rising again towards normal numbers.
There is the belief that the massive new reconstruction projects will help restart economic activity. The International Money Fund believes that the recent 7.8 earthquakes will hurt the economy less than the 7.6 earthquakes in 1999. Liam Peach, senior emerging markets economist at Capital Economics in London, believes that “Economic activity could rebound quickly after the quake, [...] Any impact this quarter will be made up." Turkey's Central Bank has also commented that they believe Turkey's economy would not be impacted in the medium term.
With this large amount of loss from Turkey, there is hope that their economy and people will continue to recover from this terrible disaster.