Calculation of economic losses from massive earthquakes in Turkey

Washington –

As Turkey continues to mourn the tragic loss of human life caused by two back-to-back powerful earthquakes two weeks ago, there are emerging assessments of the cost of rebuilding, as well as the broader financial toll it has taken on the ailing economy.

The Turkish Business and Business Confederation estimated the cost of reconstruction at more than $80 billion in its initial report issued four days after the earthquakes.

US investment bank Morgan Stanley estimated housing costs alone at about $38 billion, while JPMorgan said the estimated cost of rebuilding homes and infrastructure would be about $25 billion.

These figures do not account for the economic damage to businesses in the disaster area, where about 13.5 million people live and work, accounting for nearly 10% of the country’s economic activity.

By comparison, in 1999 a massive earthquake shook Izmit, Turkey’s industrial heartland, which at that time accounted for more than 30% of the country’s GDP.

In the aftermath of the earthquake, the country’s economic growth contracted by 3.3%.

World Bank economists tell VOA that while it is too early to predict the number of casualties from recent earthquakes, they are keeping an eye on several key factors.

Expect slower growth

The International Monetary Fund expected the Turkish economy to grow at a rate of 3% this year. But many experts say the earthquakes, the most powerful to hit Turkey in nearly a century, could reduce that by at least a third.

Speaking to Voice of America in London, Timothy Ash, Turkey analyst with BlueBay Asset Management, says the direct economic impacts are likely to be more moderate compared to the 1999 earthquake, because the earthquakes mostly affected agricultural and rural areas this time around.

Immediately once the disaster is over, he expects to see increased growth in the medium term when reconstruction begins.

World Bank economists say that reconstruction by the private and public sectors following a major disaster is being recorded as an investment in the economy. Thus, reconstitution efforts may limit the impact.

Survivors rescue belongings from their apartment building that was destroyed in a devastating earthquake, in Antakya, southeastern Turkey, February 20, 2023.

Problems rooted in economic policy

While preliminary analyzes by financial institutions, including Morgan Stanley, suggest that financing the economic loss appears manageable, experts warn that problems rooted in Turkey’s macroeconomic policy framework could make things more difficult.

Turkey was already facing challenges with an annual inflation of more than 60% and a stunning drop in its currency.

While the Turkish economy is estimated to have grown rapidly in real terms in 2022, and fiscal space remains intact, inflation has risen to a 24-year high, the lira has depreciated, and the current account deficit has widened; Humberto Lopez, the World Bank’s country director for Turkey, told VOA that Humberto Lopez, the World Bank’s country director for Turkey, backtracked.

Speaking to Voice of America last week, Silva Demiralp, an economics professor from Istanbul’s Koc University, said Turkey would have been in a better position to deal with the earthquake’s economic fallout if it had not already suffered from significant vulnerabilities that are largely blamed on the economy. total. Government policies.

“If we don’t have such a high level of inflation and tight monetary policy, we’ll be in a better position to provide broad support and deal with this more easily,” she told Voice of America.

Turkey also faces increasing external financing requirements. Depending on how much money will be needed to fund the reconstruction effort, Ash says, Turkey may need some external funding in the form of loans.

Turkish President Recep Tayyip Erdogan speaks with a survivor while visiting the quake-hit city of Kahramanmaras, southern Turkey, February 8, 2023.

political uncertainty concerns

According to analysts, the biggest concern for the economy is the perceived political uncertainty.

President Recep Tayyip Erdogan announced last month that presidential and parliamentary elections would be held on May 14.

However, a statement recently published by Bulent Arinc, the former founder of the ruling Justice and Development Party and former speaker of the Turkish Parliament, sparked controversy over the possibility of postponing the elections in the wake of the massive devastation caused by the earthquakes. . It was firmly rejected by the opposition bloc.

International investors are watching the economic and political situation in Turkey. Most of the foreigners left the local markets due to the government’s unconventional economic policies.

They are waiting to see the results of the elections scheduled for May 14th. We’ll have to wait and see if it takes place that day. And foreigners would like to see an orthodox and credible policy whether it is with this administration or the next,” argues the Turkish analyst.

The government has been criticized for what many in the disaster area describe as a slow response and lack of coordination.

Ash says he believes the outcome of the election depends on the quality of the disaster response and stage of recovery.

“The outcome of the election and possible changes in policy depending on the outcome are important to investors,” he says.

“The earthquake will be a decisive factor in determining the winner.”

Mehtab Colak Yilmaz contributed to this story.

This story originated in the Turkish service of Voice of America.

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