by Oxford Economics

Amid a surge in Covid-19 infections, Turkey entered a full lockdown last week, which means more pain for the economy.

The revised GDP growth forecast by Oxford Economics sees a 2.4% q/q contraction in Q2 (-1.7% before), assuming the lockdown is eased on May 17. This puts the 2021 growth forecast at 4.8% (4.9% previously).

The latest set of restrictions is Turkey’s most stringent since the pandemic began. With the key services sector most exposed to the lockdown, it will reinforce citizens’ expectations of the situation worsening in the near term.

Unchecked, the current outbreak threatens recovery prospects for the travel industry, external balance, FX reserves, and the lira. Foreign tourists are exempt from the curbs, but few visitors are likely until June at the earliest.

And with no additional support for businesses to cushion the expected fall in demand, more people will be out of work. The ban on firing (extended again) will continue to obscure labour market conditions, including underemployment.

Turkey confronts the most troubling phase of the Covid-19 pandemic yet. The three-week lockdown that started on April 29 came as previous measures (night-time/weekend curfews, capacity restrictions, etc.) failed to stem the surge in infections after the economy reopened in March.

Official figures showed new daily cases at record highs in excess of 63,000 in mid-April, though they have come down since. Earlier curbs dented mobility, but the new lockdown’s stringency limits activity and travel to what’s essential, with schools shut and a stay-at home order in place.

Services are poised for another drop

Based on the narrowest definition of unemployment, which tallies only those who actively seek work, the seasonally adjusted jobless rate in Turkey stood at 13.4% in February.

Already high, this rate fails to factor in involuntary inactivity and underemployment or labour underutilisation. The authorities made these statistics available earlier this year, and based on the broadest definition, February’s jobless rate stood at 28.3%, more than twice the official rate and close to the peak of 29.3% in May 2020.

Oxford Economics estimates that about half of the still-lost services jobs are tourism-related.

While the sector hasn’t been forced to close entirely under lockdown rules, it will suffer further damage due to the worsening health situation and tight restrictions on travel (both domestic and foreign).

Turkey is one of a handful of large EMs that has administered more than 25 vaccine doses per 100 people, but it now
has the second-highest number of Covid-19 cases per million people in the G20.

 

 

 

 

 

 

 

 

 

 

 

 

And unless the new lockdown brings the pandemic under control, travel from key tourist sources (Russia, Germany, the UK) may remain banned.

Another poor tourism season would strain Turkey’s external balance, maintaining pressure on FX reserves and the lira.