The European Commission (EC) on Wednesday said it expects Turkey’s economy to shrink by 5.4 percent in 2020 due to the coronavirus pandemic.
In its European Economic Forecast Spring 2020 report, the Commission said: “The economy is particularly exposed to the fallout from the crisis due to its high integration in global value chains and dependence on tourism and transport – two of the most heavily affected sectors.”
The report highlights that by the time the COVID-19 pandemic had started disrupting the global economy, Turkey’s own economy had not yet fully recovered from its 2018 recession.
Turkey felt the pandemic’s tangible effects in March as the real sector confidence plummeted to 99.7, down 7.2 percentage points from the previous month, the report shows.
The manufacturing Purchasing Managers’ Index (PMI) fell steeply from 52.4 in February to 48.1 in March.
The Spring 2020 report reveals that general economic confidence declined as well, although March data did not yet fully capture COVID-19 effects on consumers, retail trade, and construction.
The EC report forecast Turkey’s “private consumption” to decrease by 2.1%, but “public consumption” to grow by 4% this year. The rate of unemployment is estimated to rise to 16.9% in 2020 from 13.6% last year.
Inflation is expected to slow to 11.4% this year after growing 15.5% in 2019. Turkey’s inflation should rise to 11.7% in 2021, the report shows.
“The country’s reserves are sufficient to pay its debts”
Turkey’s Ministry of Finance and Treasury Berat Albayrak said that Turkey’s reserves are sufficient, banks and the private sector easily roll over their debt. “We are doing one-to-one swap negotiations with G20 countries with which we have a trade deficit and a free trade agreement,” Berat Albayrak said in a closed-door online meeting with international investors, state-run Anadolu Agency reported on Wednesday.
Albayrak made the assurance that Turkey did not plan to negotiate swap lines with the International Monetary Fund (IMF).
Despite Albayrak’s positive messages to the global investors, the Turkish lira lost more than 1.5 percent of its value on Wednesday to the record low of 7.24 per dollar since August 2018.
One investment advisor who specializes in niche markets, Michael Nicoletos, was also less than optimistic.
“1/2 #Turkey: Turkish Lira approaching it’s 08/13/18 High vs the USD. Given Turkey’s lack of FX reserves, the #TRY will keep falling. Once it breaks the highs we are off to the races. I fear the CBT will start selling part of its #Gold to prevent the currency from collapsing.”
1/2 #Turkey: Turkish Lira approaching it's 08/13/18 High vs the USD.
Given Turkey's lack of FX reserves, the #TRY will keep falling. Once it breaks the highs we are off to the races. I fear the CBT will start selling part of its #Gold to prevent the currency from collapsing. pic.twitter.com/NRxLk2ukX8
— Michael Nicoletos (@mnicoletos) May 6, 2020
Turkish economist Selcuk Gecer warned that if Turkey did not take necessary precautions, the Turkish Lira would weaken to as much as 8 lira in the coming months and later drop to between 12 to 14 lira to the dollar. Turkey’s foreign trade deficit will increase as the county is losing it main export market Europian Union market and the low export rate will be the main reason for weak Lira, Gecer told in his Youtube channel.