Economic Impact of COVID-19 Outbreak

Although health policies are important in combating the COVID-19 pandemic, it is estimated that there will be a high level of economic stagnation on the basis of both countries and worldwide, according to international economic organizations.

5.3.1 Global Economic Impact of the Pandemic

In addition to the death of many people around the world, another effect of the virus was felt in the global economy. The presence of this Central Asia-based flu in the Americas and Europe has been effective on the currencies of the countries, capital markets, precious metals, barrel oil prices, and even virtual currencies, through volatility, with the increasing concerns in the global markets. Perhaps the most resounded of these fluctuations was the declines in Dow Jones and S&P indices, which are traded in financial markets in America. The American Stock Exchange, which closed at negative for seven days in a row, experienced the biggest drop after the 2008 crisis. Likewise, the ounce price of gold, which was seen as a safe haven in times of crisis, increased to one thousand seven hundred dollars and such reac­tions prompted governments to take action and have to take some measures. When the COVID-19 disease spread all over the world, all countries started to implement socialization policies to protect public health and combat the epidemic (Mamoon 2020). The closure of educational institutions, restriction of work, and measures to limit human mobility quickly affected all sectors, especially trade and tourism (Maliszewska et al. 2020).

Today’s economy is in a structure where employees, financial institutions, compa­nies, suppliers, consumers, and countries are connected to each other (Gourinchas 2020).

Due to the COVID-19 outbreak, the total demand and supply shrunk first in China and then all over the world. According to the report prepared by the IMF, it is calculated that the world economy will shrink by 3% in 2020. It is suggested that the world economy will grow by 5.8% in 2021, predicting that the impact of the epidemic will decrease (IMF 2020a, b). When Table 5.1. taken from the report prepared by the IMF is examined, it is clearly predicted that recession will be seen in many regions

Table 5.1 Overview of the world economic outlook projections (percent change, unless noted otherwise)

PROJECTIONS

Source (IMF 2020a, b: 7)

of the world considering the projections. It is estimated that the real GDP growth figures of developed economies will shrink by 6.1% on average in 2020.

It is predicted that negative growth expectation for emerging markets and devel­oping countries will be seen on the basis of regions. In particular, it is above 5% of the expected shrinkage in Brazil, South Africa, Mexico, and Russia.

5.3.2 Economic Impact of the Pandemic on Turkey

Various unprecedented developments have been observed in world economy such as closure of borders, restriction of transportation, isolation of people in their homes, curfews, minimized import and export activities, and contractions in both supply and demand. This crisis is different from other economic crises; all countries around the world and thus Turkey have also inevitably been affected.

When considered in terms of Turkey, in fact, it can be said that the effects of the crisis that had been experienced in the world economy before COVID-19 to be more perceptible in 2018 and subsequently in 2019 when it became more concrete as reflected in numbers. As a matter of fact, although the growth rate was 0.9% in the last month of 2019, the 6% growth rate achieved in the last quarter of the year led to optimistic estimates for 2020, and the growth rate for 2020 was determined as 5%.

Turkey was not much affected by the developments in the December 2019 when COVID-19 was first pronounced and during the first two months of2020 (perhaps due to being out of China’s supply chain), and this optimism continued. However, after the first case was seen in March, there was a slowdown in production in all sectors, especially in the service sector, including industry and construction, manufacturing, education, and production even stopped in some sectors. Significant shrinkage began to be experienced not only in production but also in demand.

The contraction production and demand brought along decline in GDP of Turkey, as was the case for the whole world. Indeed, according to May 2020 data, IMF’s forecast for real GDP growth in Turkey is -5%. This will also cause significant decline in tax revenues. The decrease in tax revenues increases the budget deficits and the public sector borrowing requirement. On the other hand, while the unemployment rate was 13.7% in 2019, the IMF’s forecast for 2020 increased to 17.2%. Significant increases in the inflation rate continue.

As a result, the economic impacts of the COVID-19 outbreak are expected to be negatively long-lasting and profound. Therefore, financial measures to be imple­mented by states within the scope of economic policies are important in combating the economic stagnation that the epidemic will cause.

5.4