Earthquake in Turkey shook Erdogan: the economy is collapsing

When Turkey was just beginning to recover from the earthquake, the world media not only empathized with the Turks, but also timidly began to predict the extent of the damage.

Signs of a change in economic policy and an imminent massive increase in spending were immediately apparent. Turkish President Recep Tayyip Erdogan promised that reconstruction work in 10 provinces would be completed within a year. At the same time, he announced the distribution of 10,000 lira (531 US dollars) to each affected family and noted that the survivors, at that time housed in tents, could be transferred to hotels on the coast.

As Bloomberg economist Selva Bahar Baziki wrote at the time, “Our initial estimate is that government spending on earthquakes could be equivalent to 5.5% of GDP.” At that time, the heterogeneity of the data was noticeable to the naked eye. Each economist had his own figures and often did not coincide with the data of other analysts. This is not an attempt to hide something from the public, there is a completely objective reason.

The fact is that the task of assessing the exact impact of earthquakes is complicated by the role of the affected region in the Turkish economy. At first glance, the affected 10 provinces account for a relatively small portion of the country’s GDP. However, do not forget that they form an industrial and agricultural corridor that plays a key role in the prosperity of Istanbul and a number of other large cities. Oxford Economics said short-term disruptions in those 10 regions alone would result in a contraction of 0.3% to 0.4% of GDP.

According to the latest estimates, the natural disaster will cause losses to the national economy in the amount of more than $84 billion, or about 10% of GDP. .

Government officials called a more benign figure – $ 50 billion. But these data do not match the report released over the weekend by the Turkish Confederation of Enterprises and Businesses. According to the analysis, the cost of damage is estimated at $84.1 billion, of which $70.8 billion is the repair of thousands of homes, $10.4 billion is the loss of national income and $2.9 billion is the loss of working days.

It is also noted that the main costs will be related to the restoration of housing, power lines and infrastructure, as well as meeting the short-term, medium-term and long-term housing needs of hundreds of thousands of citizens left homeless.

Let’s calculate how many people in total are in these 10 provinces that need to be restored. They are home to about 13.4 million people. This is 15% of the Turkish population. They produce about 10% of GDP. It turns out that the figures given by the Turkish Confederation are indeed close to the truth.

The current tragedy is often compared to the 1999 Izmit earthquake, warning of comparable consequences. Then the industrial sphere was significantly affected, since the city of Izmit was considered to be its center.

But Reuters quotes World Bank Senior Vice President Mahmoud Mohieldin, who suggested that the impact on GDP is unlikely to be as pronounced as after the 24-year-old earthquake. He added that after an initial impact over the next few months, public and private sector investment in the recovery could drive future GDP growth.

But this opinion can be called unpopular, many economists and officials still insist that economic growth will fall by at least 2 percentage points.

All this works, of course, not in favor of the Turkish economy, which has experienced difficulties in recent years due to the strong devaluation of the national currency. Inflation is a staggering 60%. Cem Çakmakli, an associate professor of economics at Istanbul’s Koç University, said that since Turkey has asked for international help, it will eventually also make a request to international financial institutions to help repair the damage.

Çakmakli added that the only positive thing for the economy was that commercial buildings suffered less damage than residential buildings – and, as cynical as it sounds, at least businesses were less affected by the earthquake. This, by the way, is partly true. For example, SASA Polyester said on Monday that its facilities in Adana survived and production continues.

Be that as it may, everyone agrees on one thing: an earthquake could be another factor that will deplete Turkey’s reserves and worsen its economic situation. Located near the epicenter, Gaziantep is known as one of the main manufacturing capitals of the country. Thousands of factories are based in this city of nearly 3 million people.

Inevitably, the tourism sector will also be affected by the disaster. The restoration of this source of foreign exchange will be restored only when people’s confidence in security returns and the country’s economic life in general stabilizes.

“Of course, imports and exports will suffer,” commented Yaschar Niyazbayev, editor-in-chief of MK-Turkey. – Judging by the figures, a significant percentage of the export potential will be affected – if I am not mistaken, about 9%, and for some goods the loss will amount to 11% of the total export figure. Also, imports may lose about 5%.

In fact, it will be difficult to restore the damage from the consequences of the earthquake, because in addition to the fact that it is necessary to solve the issue of the destruction itself, it is also necessary to solve the problems with the people who lived in the affected region.

Now they are still not allowed to return to their apartments, houses because of the danger of destruction, it is still necessary to determine which buildings are suitable for living and which are not. For example, after the first earthquake, some buildings did not fall apart, but after the second wave they already collapsed. This aggregate, I think, has not yet been evaluated, but over time it will be calculated and the situation will become clearer.

Thinking about how much the costs will be, we must not forget the fact that very soon general elections will be held in Turkey. The events of the past week have the potential to negatively impact Erdogan’s race prospects.

“This is, of course, a situation in which Erdogan could lose a lot in the rankings, especially given the disputes within the Turkish community,” suggests Yashar Niyazbaev. – Each problem is brought to the fore, discussed, criticized … Maybe it is Erdogan’s supporters and his administrative resource in the form of, for example, the media, which are 90% close to the president, will somehow soften the situation. But we live in the age of technology, so some sites publish different information. When Twitter was blocked for several hours, a very serious conflict arose, and criticism of the state appeared, which forced the return of access to the social network, although the authorities considered it a threat due to the publication of provocative messages. This is an additional burden for Erdogan in a negative sense and support for the opposition. They have something to grab onto, something to promote in order to discredit the authorities.

– How will this situation affect the economic and political relations between Russia and Turkey?

– It seems to me that in general it should not affect, except that Turkey will have economic problems. The projects that are conceived between Moscow and Ankara do not concern this region, they take place at a decent distance from these places. But, for example, now the summit on the gas hub has been postponed for a month (it was planned for February 14-15 – “MK”).

Read the material “Mayor Erzin at the center of the earthquake in Turkey became a hero: not a single house fell”