Turkey’s industrial production suffered its biggest decline since the height of the global pandemic three years ago, in one of the clearest indications yet of how the earthquakes that hit the country are filtering through to the economy.
(Bloomberg) — Turkey’s industrial production suffered its biggest decline since the height of the global pandemic three years ago, in one of the clearest indications yet of how the earthquakes that hit the country are filtering through to the economy.
Output plunged an annual 8.2% on a seasonally and calendar-adjusted basis in February, the same months that tremors struck, data from state statistics agency TurkStat showed on Tuesday. In monthly terms, the drop was the biggest since July.
Described by officials as “the worst disaster of the century,” the earthquakes killed over 50,000 people across 11 provinces in Turkey’s southeast that account for about a 10th of Turkey’s total output. President Recep Tayyip Erdogan’s government estimates the cost of the disaster will exceed $100 billion.
With businesses such as steel mills paralyzed in the immediate aftermath, the question now is if the quakes will deliver more than a short-lived shock for the $900 billion economy. As critical elections approach next month, the government has ramped up spending on relief measures and promised a construction blitz across the affected areas.
What Bloomberg Economics Says…
“The earthquake’s impact on output could reach 1% of GDP this year. That is likely to be partially offset by government spending on disaster relief and rebuilding, as well as expansionary pre-election policies.”
— Selva Bahar Baziki, economist. Click here to read more.
Mining and quarrying was the industrial sector hit the most in February, shrinking over 18% on a monthly basis. Data earlier this week also showed seasonally adjusted unemployment rose to 10% in February from 9.7% the previous month, for the biggest increase since September.
“Earthquakes will pull down industrial production in the first quarter but these effects will be made up for as of March,” Haluk Burumcekci, the founder of Burumcekci Research and Consulting in Istanbul, said in a report.
Read more: Monetary Policy: Turkey Central Bank to Remain Loose Before Vote
Adding to fiscal efforts by the government, the central bank reduced interest rates by 50 basis points after the earthquakes but kept its benchmark at 8.5% in March. It will next review borrowing costs on April 27.
With monetary policy long stuck in ultra-loose mode, the pause last month signals confidence by the central bank that the economy can cope with the damage without extra stimulus. Following its March decision, it said rates were at an “adequate” level already.
“While the earthquake is expected to affect economic activity in the near term, it is anticipated that it will not have a permanent impact on performance of the Turkish economy in the medium term,” the central bank said.
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