By Aditi Singh

Abstract

This report gives a deeper insight into the economic impact of the recent disastrous earthquakes which took place in southern Türkiye and parts of Syria as well. The economic indicators of Türkiye before the occurrence of the earthquakes weren’t substantial even though on the surface level it might seem so. The onset of the earthquakes worsened the existing circumstance in unfathomable ways. This report attempts to further understand the economic state of affairs by analysing the economic conditions before and after the disaster in Türkiye.   

Introduction
Türkiye’s economy is the 19th largest in the world by GDP, but when purchasing power parity is factored in, it is positioned at 11th rank. It is concerning that extreme natural disasters, poor economic management, and political mismanagement could erase the progress the nation has accomplished over the past 20 years. 

South-central Türkiye experienced a magnitude-7.8 earthquake on February 6, 2023, which was followed by a magnitude-7.5 quake nine hours later. According to the US Geological Survey, the earthquakes, one of the greatest to impact the area in more than 100 years, occurred 24.1 kilometres (14.9 miles) beneath the surface in Türkiye’s Gaziantep province, 23 kilometres (14.2 miles) east of Nurdagi (Subramaniam, Sangal, et.al.) The earthquake’s epicenter was close to the Turkish city of Gaziantep. Around 42,000 people have died as a result of this tragedy, tens of thousands of people are now homeless, and over 2 million people have fled the disaster area (Subramaniam, Sangal, et.al.).

Economic forces shaping Turkish citizen lives before the disastrous earthquakes

In 2021, real GDP recovered by 11.4%, and in the first three months of 2022, it increased by 6.2% (OECD, 2022). Exports and personal consumption have been the two main principal forces for economic expansion. Positive changes in the labour market and lending circumstances have helped to strengthen private consumption. Many people have re-joined the workforce, especially young people and women, whose labour force participation is currently higher than it was before the pandemic as given in the OECD report. Turkish exporters have been able to take advantage of supply chain problems in Asia by primarily relying on substantial spare capacities, however, gross investment has been low which was highlighted in OECD report of 2022.

Figure 1 visually represents the economic growth in the Türkiye economy over the past 8 years. 

On the other hand, inflation has reached a 20-year high, which has been worsened by global supply shortages and strong domestic and international demand. Consumer price inflation was 72.3% in 2022, whereas producer price inflation was almost 128% (OECD, 2022). With Türkiye being a net importer, the sudden increase in energy prices as well as other commodity prices brought on by the epidemic and later Russia’s conflict with Ukraine severely impacted the overall inflation. The depreciation of the lira has increased pressure on import prices (OECD, 2022). 

Figure 2 graphically represents the soaring inflation in the economy.

Moreover, Türkiye bordering Syria has led to immigration and refugee arrivals from Syria due to their ongoing civil war. According to OECD, over 3.8 million refugees from Syria alone have turned to Türkiye as mentioned by UNHCR. Additionally, due to the current Russia-Ukraine war, numerous citizens from these nations also seek refuge in Türkiye. As a result of this, over 8 million people are estimated to live in the cities of Türkiye, which in turn drives up the housing and rental prices which critically impacts the cost of living of the entire nation. Along with a massive unemployment rate prevailing, even a slight surge in the cost of living is devastating. 

Since September 2021, the central bank has decreased its base rate by ten percentage points. In order to divert loans to the productive and exporting sectors, it has also relied on a novel approach to monetary policy, with unique arrangements and differentiated macroprudential norms. As a result, several sectors have experienced tighter financial conditions (OECD,2022). Macroeconomic policies, high commodity prices, and a quick recovery from the COVID-19 epidemic have all led to rising inflation, expanding external imbalances, and implicit liabilities. The economy is less resilient to shocks (like extreme natural disasters) as a result of these vulnerabilities.

The Impact of February 2023 Earthquakes on Türkiye’s Economy

Particularly Türkiye’s agricultural and industrial sectors are more at risk now than they were before the earthquakes. Around 15% of Türkiye’s agricultural output and 9% of its industrial output are produced in the affected provinces. According to the European Bank for Reconstruction and Development, Türkiye’s GDP loss could reach 1%. Instead of a GDP growth of 3.5%, the IMF had forecast that the Turkish economy would expand by 3% this year. However, many analysts believe that the earthquakes, which were the strongest to strike Türkiye in a century, might cut that number by at least one-third. 

With 15% of the population living in these 10 provinces, the contribution towards GDP is only 8-9% (Ersoz, 2023). The average income of a citizen in these earthquake-affected areas is roughly only two-thirds of the income of an average Turkish citizen (Ersoz, 2023). To a large extent, agriculture was the economic backbone in the rural regions affected. Therefore, this region contributes to the agriculture exports of Türkiye.  Türkiye is a major exporter of many fruits, including apricots, therefore there might be a knock-on effect throughout the global economy (Kunio, 2023). Tourism, along with industrial production and agricultural production, is crucial to the Turkish economy. Due to the inaccessibility of numerous well-known tourist attractions, this industry is anticipated to suffer greatly.

Before the government could halt the stock exchange, the Turkish stock exchange lost almost 3.9 billion dollars in value, creating concerns about the sentiment of both domestic and foreign investors. It was already anticipated that the delayed recovery of export demand, persistent issues with the global supply chain, and still high input costs would constrain the increase in industrial production in 2023. The earthquakes will intensify those obstacles. The previously mentioned industries of steel, cement, food processing, and textiles would be especially heavily hit.

It’s hard to restore the massive property damage incurred in Türkiye due to the earthquakes in the short run. It is estimated that a minimum of 2 to 5 years will be required to rebuild the lost infrastructure and residential buildings according to many experts. With this in view, Türkiye is already witnessing refugees migrating to the further west to seek refuge in more stable nations currently. Refugees usually take the role of casual workers to sustain a living. A drain of the casual workforce from the earthquakes impacted regions which are heavily fuelled by agriculture will further nudge the economy into a downward spiral.

The cost incurred due to the earthquake is humungous. The total cost incurred adds up to over USD 168 billion. Thousands of residential buildings were damaged as a result of this disaster rendering tens of thousands of people homeless, rebuilding these properties at such a massive scale is going to be expensive, extensive, and tedious. The property and infrastructure damage solely amounts to USD 84.1 billion. 

Figure 3 below represents a bar graph indicating the costs incurred as a result of Türkiye’s earthquakes.

Source: Turkish Enterprise and Business Confederation

Conclusion

The earthquakes affected regions of  Türkiye are currently facing numerous challenges and will continue to face at least in the short-run. On the one hand, well-educated people are migrating from Türkiye due to the opportunities in the economy which accelerated the mismanagement and political instability leading to declining foreign direct investments. Furthermore, this natural disaster has also become the basis for refugee migration, thereby draining the economy of the casual workforce as well.  On the other hand, the dip in agricultural and industrial exports and the overall economic growth in the region, are roots of an enormous economic burden. The nation calls for a complete tedious change in the way the economy operates. Increased trust and cooperation need to be achieved within the government and between the people and the government of the country to pull the economy out of the negative spiral.