Spotlight: Turkish currency dwindles amid grim economic outlook

Source: Xinhua| 2020-04-04 20:26:08|Editor: xuxin
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ISTANBUL, April 4 (Xinhua) -- The Turkish currency is sliding at crisis levels despite powerful interventions the central bank has carried out in markets amid bleak prospects for the country's economy hit by the novel coronavirus pandemic, experts said.

The Turkish Lira (TL) is now at levels last touched during the worst of the 2018 currency crisis which triggered a recession as the pandemic has begun weighing on manufacturing, trade and tourism, Turkey's vital economic income sectors.

On Friday, 1 U.S. dollar was traded at 6.74 TL and 1 euro at 7.30 TL amid an exodus of capital like in other emerging markets.

So far, since the start of the year, the Turkish currency has fallen more than 11 percent against the dollar despite the central bank and state banks have been drawing on precious reserves reaching 40 billion dollars in 2019 and 20 billion dollars so far this year to try to halt the depreciation, experts said.

Ankara has adopted strict measures to contain the rapid spread of COVID-19; but unlike most European nations, it has stopped short of a national lockdown.

The number of confirmed infections jumped to nearly 21,000 and deaths to 425 on Friday as President Recep Tayyip Erdogan issued a mandatory confinement order for everyone under the age of 20 to stem the spread of the virus.

More than half of the cases have been in the economic hub Istanbul, which has a population of around 16 million people.

Economists say Turkey could be on the way of a fresh recession that it was slowly shaking off before the outbreak with a return to growth, as the fallout from the coronavirus pandemic is expected to hit exports, tourism and domestic demand in the coming months.

"Already before (the outbreak), there were hardships for the private sector. The sharp slide in the Turkish currency will further hit businesses and indirectly banks that have lend them money," Can Selcuki, the managing director of Istanbul Economics Research and a former economist with the Work Bank, told Xinhua.

"Businesses and factories will try to hold on as long as they can. But as long as there is no demand amid a halting global trade, there will be problems," he pointed out.

Despite an overall bleak forecast for the economy, Selcuki ruled out as "much to early" the risk of a partial debt default for Turkey in its external debt voiced by some economists who say such a move could jeopardize the rest of the emerging markets.

Turkey's gross external debt stock totaled 436.9 billion dollars at the end of 2019, according to the Treasury and Finance ministry. This figure corresponds to 58 percent of the nation's gross domestic product (GDP) last year, the ministry said.

Selcuki believes the top concern will be an inevitable increase in unemployment.

"Saving amounts are very low in Turkey amongst households and some of them don't have any guarantee, living on a daily income," stressed the economist who argued that for small enterprises, this crisis is turning to a matter of "survival."

Selcuki indicated that in this context, the government's growth target of 5 percent for this year "which was unrealistic even before the coronavirus shock" will be "impossible" to reach.

Credit rating agency Moody's revised its prediction for the country's GDP growth from 3 percent in 2020 to a 1.4-percent contraction.

The Turkish government announced a 100-billion-lira (14.86 billion dollars) stimulus package on March 18. It included tax postponement and subsidies directed at domestic consumption, such as reducing VAT on certain items and suspension of national insurance payments in many sectors, for six months.

But economists argued that it is an insufficient sum for an economy as big as Turkey's.

Most of the support will go to medium-sized and large companies that were forced to close, and only a very tiny amount to individual workers.

The tourism sector, which accounts for about 12 percent of the economy and instrumental in helping the country emerge from a painful recession, has already been decimated.

Over 2 million workers will not be able to work as they had been expecting to in the peak tourist months between April and May, according to estimates.

"At this stage, I can say that this is a disaster for this season and it happens as things were promising for this year," said Sami Demir, a travel agent from Ankara, to Xinhua.

"The government's (stimulus) package does not foresee much for the tourism sector as it is largely expected that the season will take on from May, but I don't personally think so; this crisis could continue until the end of summer," he said.

Whereas the robust tourism industry could pick up the pieces after the fallout of the pandemic, Demir believes that small hotels and facilities will go bankrupt, adding new numbers to the jobless mass.

Turkey's textile and clothing sector which accounts for 10 percent of the country's GDP, according to government statistics, would also be hit hard as consumer spending is expected to plummet at home and abroad, experts said.

The only relief is the low oil prices for Turkey, which is largely dependent on imports for its energy.

Yet household are feeling the strain.

"Already before this virus, life was hard. It will only be harder for us who will probably be left with less money in our pockets to try to get by because our purchasing power is dwindling as prices go up," said Lale Arkin, a bank employee outside a supermarket in Ankara's Yildizevler neighborhood.