Turkey experienced one of the most devastating earthquakes of the century with a magnitude of 7.8 and an unusually powerful aftershock of—or de facto a second earthquake—of 7.7 magnitude on February 6, 2023. The earthquake has not only caused a horrific humanitarian crisis, but will also have both economic and political implications for Turkey.
- As of February 15, more than 35,000 people were killed and 105,505 were injured by the earthquake and its aftermath.
- There is, unfortunately, a risk of spreading disease and malnutrition due to the earthquake. There will also be delays in treating pre-existing health concerns for the resident population.
- There are serious risks of post-traumatic stress disorder for those affected and have been part of the rescue efforts.
- Education has been halted across the country. The government announced education will resume in non-affected areas on February 20, meaning a disruption of two weeks will have occurred. Meanwhile, education in affected areas will remain suspended until March 1.
- The earthquake has revealed that while the civil society and humanitarian response to the earthquake was immense, this did not translate into political unity across different factions. Quite the contrary, the extent of polarization in Turkey’s social and political landscape has been revealed, hinting at the level of tension possible if controversy occurs during the election period.
- While the actual impact is difficult to quantify and new polling results will be needed, the overwhelming reaction has been rising discontent with the current government regarding its late and ineffective response to the earthquake. This will be an important trend to watch in the lead-up to the election.
- The date of the election has also come into question. Despite signals from the president that the election would be held on May 14, the date officially remains June 18. It seems the government will be unlikely to pull the election date forward as originally planned. It is also unconstitutional to delay the election beyond the June date. However, a very low-likelihood scenario of a state of emergency being extended should be monitored.
- A severe decline in service sector consumption in affected cities will occur. The 10 cities make up 7% of the service sector in Turkey.
- A short-term hit will occur to industrial production in the affected cities. The 10 cities made up 9% of the industrial sector in 2021 and 8.7% of exports in 2022.
- A hit to domestic food production will also be felt. The 10 cities make up 14.5% of agriculture land, 20.9% of vegetative production, 12% of cattle, and 16.3% of small cattle activity.
- Fiscal health will deteriorate. The government announced TRY 15,000 in cash will be given to all households affected. The government will have to allocate significant operational expenditures to crisis management and will need to fund reconstruction efforts in a few months and infrastructure investments in the very near future.
- Meanwhile, demand for basic goods has increased, as the entire country has mobilized to purchase and send as much support as possible to the affected areas.
- Estimates using the 1999 Marmara Earthquake show the housing impact will be around US$ 70.7 billion, and overall GDP impact around US$ 10.4 billion.
In addition, the previously expected curve of growth for 2023 will shift. While our original expectations were that we would see some slightly better growth in Q1 and Q2 2023, and a slowdown in the economy in H2 2023, this will likely change. A dip in Q1 GDP is highly likely at this point, after which, into Q3 2023, construction-driven investments will need to accelerate and will likely boost the country’s GDP.
Recent government actions
- Halted the import of gold temporarily
- Halted the export of container shelters/housing for three months
- Dropped the VAT rate on container housing to 1% from 18%
- Delayed the due date of debt payments by six months for businesses that were impacted by the earthquake. This applies to debt owed to Halkbank and for credit due in six months of February 6, or was in the 90-day extension period of its repayment
- Postponed electricity bills in the affected areas
- Waived the central bank’s reserve requirement for banks for credit extended to residents of the 10 cities affected by the earthquake
- Suspended the Istanbul Stock Exchange from February 9 to February 15. Upon the resumption of trading, the public contributions of the Individual Pensions Scheme are being used to recover the BIST indexes. As the funds in these pension schemes are being used to purchase stocks, they are being diverted away from government bonds. Thus, the central bank will be stepping in and purchasing these bonds to provide funding to the government and potentially prevent a significant rise in interest rates. Inflationary implications of this must be monitored.
Sources: TUIK; TURKONFED; BloombergHT; Ekonomim; NTV
At FrontierView, we are extremely saddened by the horrible earthquake that has hit Turkey and Syria. Our prayers, best wishes, and the help and donations of our employees go to those affected by this disaster. In these difficult times, we are hoping for a speedy recovery for those injured, for help and support for those left without a home, and for patience and strength for those who have lost loved ones.
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