Coronavirus may exhaust Turkey’s opportunities for economic recovery: report

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Photo by M. B. M. (Unsplash)

Turkey, which unleashed a massive stimulus to recover from a 2018 currency crisis, is poised to stretch its central bank and public finances even more to defend the economy and tourism sector from the global coronavirus pandemic, according to Reuters.

The risk of two shocks in less than two years could leave the country with less defensive ammunition than most others as governments around the world slash interest rates and spend big in the face of a possible global recession.

Turkey is the world’s sixth-largest tourist destination, but waves of travel restrictions and cancellations could pinch a sector that accounts for some 12 percent of the import-dependent economy, analysts said.

Economists expect Turkey’s central bank will cut rates by as much as 100 basis points next week, which would take the policy rate, at 10.75 percent, into single-digits as President Recep Tayyip Erdoğan has long urged.

An aggressive easing cycle since July, when the policy rate was 24 percent, was drawing to a close. But that may have changed now that the rapid spread of coronavirus has sent global financial markets reeling.

The crisis that peaked in August 2018 briefly halved the lira’s value and sparked a recession from which the economy only definitively recovered in the second half of 2019.

In the latest sign of distrust in the lira, foreign currency holdings hit another record high last week.

Yet while the currency has fallen more than 5 percent this year, pushing inflation higher, an emergency rate cut last week by the US Federal Reserve helped the lira stem some losses against the dollar.

Unlike many emerging-market producers, Turkey, which imports virtually all its energy needs, would also benefit from a standoff between Russia and Saudi Arabia that has sent oil prices plunging. Cheap energy imports could ease inflation and convince the central bank to continue its stimulus.

Turkey on Wednesday was the last large, wealthy country to report its first coronavirus case, and its preparations won praise from the top local World Health Organization official.

To prevent its spread, the government advised hotels dotting the Aegean and Mediterranean coasts to delay summer openings by a month. Turkish Airlines, among the world’s top carriers, said ticket cancellations are up 50 percent since mid-January.

Ankara has promised financial support for the sector, which on a net basis added $25 billion in revenues in 2019, when Turkey logged its first current account surplus in 18 years.

But protracted fiscal stimulus could strain the budget after a boost in spending last year sent the deficit up 70 percent. Adding to costs this year, Turkey has poured troops and military equipment into northwest Syria.

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