The Turkish economy to shrink for the first time in a decade this year, according to Reuters

The Turkish economy will have to face its first annual downturn in ten years, according to a Reuters survey of 40 economists released on Tuesday. The projections indicate a contraction of 1.4% of GDP in 2020. In the second and third quarter there will be two falls, of 8.6% and 5.3%, respectively.  

Before the spread of the coronavirus, the Turkish government expected the economy to grow by 5% this year after recovering from a recession last year. The executive hasn't updated its GDP projection since the country registered its first case of the coronavirus in mid-March. The virus has been spreading since then and Turkey has been ranked 7th in the world for confirmed cases of the pathogen, as well as 1st in the Middle East, ahead of Iran. Ankara has closed schools and some businesses, as well as borders, but it hasn't imposed widespread confinement to keep some economic activity open.  

"We believe that all sectors of the economy will be affected by COVID-19 and we assume that most of the negative impact will be concentrated in the second and third quarters of 2020," explained UBS Bank economists. "Both investments and exports should contract completely in 2020 given the global slowdown of the pandemic. However, credit growth - although clearly expected to fall sharply from current levels - could remain weak at the end of 2020," they said. Economists consulted by Reuters estimate that the economy will grow again by 3.7% in 2021. For the first quarter of this year, the official report planned for May 29th shows a growth of 4.4%. 

The last time the Turkish economy contracted was in 2009. The decline then was 4.7%, but from 2010 to 2018 the country managed to grow by up to 5% on average thanks to the construction boom driven by cheap capital after the financial crisis of 2008. The currency crisis of two years ago was triggered by concerns about the independence of the central bank and tension between Ankara and Washington. That led to three consecutive terms of economic contraction and a modest annual growth rate of 0.9 per cent in 2019. 

Since last July, the central bank has reduced rates to 9.75% from 24% to boost growth and lower the inflation rate. In the survey, economists predicted that the central bank would continue to cut to 8% by the end of June, as it would increase its financial response to the outbreak, according to the responses. 

Similarly, annual inflation, which has been around 12% in recent months, is expected to fall to 8.3% at the end of the year before rising to 8.9% at the end of 2021, according to those interviewed. "We expect inflation to slow down quickly because of the decline in oil prices ... with a single-digit CPI already from May 2020 onwards," UBS analysts have estimated. 

Turkey's President Recep Tayyip Erdogan announced on Tuesday that he wants to put the country in motion and return to normal by the end of May, according to statements made by the president to the state news agency Anadolu. Turkey has registered 90,980 cases of coronavirus and 2,140 deaths so far. "This pandemic has become the biggest crisis since World War II in terms of its economic consequences," the president told his party officials in a video conference meeting. "Our goal is to achieve maximum compliance during the month of Ramadan and, if God wills it, a transition to normal life for our country after the holidays (at the end of Ramadan on May 23)," Erdogan said.