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December 2, 2020


TURKEY: Mismanagement of Covid-19 spike set to worsen economic outlook

BY Wolfango Piccoli

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Two policy U-turns in less than a week signal the seriousness of the pandemic outbreak in Turkey. Facing a “perfect storm” as the country’s hospitals are overstretched, medical staff burned out and the contact tracing system overwhelmed, the government was left with no other option than introducing new restrictions. The lockdown (and its impact on the service sector) and the low level of confidence in the government’s ability to manage the pandemic and the economy are likely to push Turkey into recession in Q4. Unlike Q2, the massive credit stimulus that helped to soften the economic impact of the pandemic will not be available. Looking ahead, it will be critical for the authorities to bring the crisis under control early in the new year to avoid putting at risk the summer tourist season (worth around USD 30-35bn in revenues in a good year). This is because European tourists normally tend to book their summer holidays in January and February.

Erdogan’s U-turns

In an about-face, President Tayyip Erdogan’s government last week resumed reporting all positive coronavirus tests – not just the number of patients being treated for symptoms – pushing the number of daily cases to above 30k. The daily caseload almost quadrupled overnight confirming medical professionals’ concerns that the government’s previous figures were concealing the graveness of the spread and that the lack of transparency was contributing to the surge.

Despite the policy-shift, there are still serious doubts about the quality of the official data. The Turkish Medical Association (TTB) believes that the number of daily COVID-19 infections is around 60k, double the amount reported by the Health Ministry. There is also evidence suggesting that Ankara is deliberately under-reporting the number of daily Covid-19 related deaths.

The second U-turn came on 30 November when Erdogan announced Turkey’s strictest measures so far in a bid to stem a surge in coronavirus infections, extending curfews to weeknights and putting a full lockdown in place over weekends. This was a meaningful policy shift for a government that has ignored calls for tougher restrictions by health professionals, trade unions and the opposition for months in a futile drive to prioritize the economy over public health.

A night-time curfew is now in place on weekdays between 9pm-5am, while weekend-long curfews will run from Friday 9pm until Monday 5am. Sectors including production, logistics, health care, agriculture and forestry are exempt from the curfews, while grocery stores and food delivery services are allowed to operate within certain hours during weekend lockdowns. In addition, people older than 65 or younger than 20 are no longer permitted to use public transportation and shoppers must use a contact tracing code to enter malls. Schools will remain closed until the end of the year.

Turks remain skeptical about Erdogan’s economic reforms pledge

The mismanagement of the new virus outbreak, growing distrust in official figures (inflation data included) and renewed political noise coming from Ankara have significantly undermined confidence in the government’s ability to manage the intertwined public health and economic crisis. Leaving aside the data from pollsters suggesting that Turks are wary and deeply concerned unemployment, locals have kept buying gold and foreign currency (notwithstanding the TL appreciation, FX deposits reached the peak of USD 252bn in the week of 20 November) despite Erdogan’s pledge of a new economic era after the recent shake-up in the economic team. Looking ahead, regaining the confidence of Turkey’s savers represents Erdogan’s biggest challenge.