Macroeconomic and Sectoral Effects of COVID-19 in Turkey

The growth rate of Turkey’s economy has slowed in recent years, after the exchange rates shock experienced in August of 2018. The growth rate, which was 0.9% in 2019, is estimated at 5.0% for 2020 in the medium-term programme.

Some restrictions were recorded on the supply side as a result of the administrative measures taken by the companies and implemented by the government following the first COVID-19 case in Turkey was reported on 10 March 2020. Limiting the capacity and ceasing the production in some facilities and the closure of various businesses in service and retail sectors decreased the productive capacity of employment. The squeeze in supply combined with curfews, travel restrictions, remote and flexible working, unpaid leave, and the psychological effects of the pandemic changed the level of demand, leading to a total recession in supply and demand (Deloitte 2020a).

In a short time, the reactions of households and firms started to reflect in economic indicators. Accordingly, household consumption expenditures decreased in Turkey by 34% in 3 April week compared to 13 March week (TEPAV 2020). With this decrease in consumer demand, the supply side was also affected, and the capacity utilization rate in the manufacturing industry was recorded as 61.6%, by 13.7% decrease in April compared to the previous month (TCMB 2020).

Uncertainty and insecurity created by COVID-19 have become an insuperable obstacle in front of Turkey’s growth strategy. In a report published in June 2020, IMF estimates that Turkey’s economy will experience a negative growth by -5.0% at the end of 2020. Similar to the IMF’s forecasts, organizations such as the World Bank and the EIU also expects Turkey will shrink in 2020.

Considering the studies examining the sectoral effects of the pandemic; according to the publications of Demir et al. (2020), while sectors such as airline, road trans­portation, entertainment, tourism-hotel management are damaged, it is expected that there will be an increase in cleaning materials, mask manufacturing, remote shopping and online shopping sectors. The reflections of this change in imports and exports will be similar. The shares of the sectors in GDP, the level they are affected and the time they go back in business are presented in the Table 6.3.

In Table 6.3, according to their shares in GDPin 2018 sectors are 54.26% Services, 22.30% Industry, 7.17% Construction, 5.82% Agriculture, respectively. According to ULISA (2020), main sectors in Turkey except for agriculture will be highly affected by COVID-19. Moreover, the recovery process of these sectors will be slow. Agriculture is expected to be less affected by the pandemic.

In the study conducted by Voyvoda and Yeldan (2020), the top five sectors that will shrink the most compared to 2019 are Accommodation and Food Services by

Table 6.3 Sectors and

COVID-19

Source ULISA (2020)

55.6%, Tourism by 51.5%, Construction by 48.7%, Air Transport by 47.7% and Iron and Steel by 40.5%.

In his study about the effects of pandemic on GDP and employment in Turkey, Taymaz (2020) suggests that household consumption expenditures and exports are the directly affected. The sectors that will suffer the most from the pandemic are accom­modation and food services, tour and travel companies, show and performing arts, entertainment sector, cultural services, sports sector, airline companies and betting games. According to the results of the analysis, it is predicted that there will be a decrease of 7.2% in added value and 10.7% in employment.

The reflections of the projections in the studies are seen in the statistical indicators as time passes. In the sub-sectors of industry, the mining and quarrying sector index decreased by 14.5%, the manufacturing industry index decreased by 33.3% and the electricity, gas, steam and air conditioning production and distribution sector index decreased by 14.9% in April 2020 compared to the same month of the previous year (TUIK 2020). The expectation that the recovery in manufacturing, which is the sub­sector with the highest share in the industrial sector, will continue slowly may have negative consequences for the coming months.

Contractions in the manufacturing sector were also reflected in foreign trade statis­tics. In April, compared to the same month of 2019, the biggest shrinkage occurred in the manufacturing sector, amounting to 43%, while there was a shrinkage of 30.3% in imports in intermediate (raw materials) goods. The ratio of exports to imports contracted sharply in the light of all these developments. While the foreign trade deficit increased by 67% in April compared to the same month of 2019, it increased by 102.3% in the January-April 2020 period compared to the same period of 2019 (Soylu 2020).

Included in the manufacturing sector, revenues and productive capacity of auto­motive, textiles and white goods sectors which have a high share in the distribution of export revenues in Turkey have gone downwards in this process.

Automobile sales decreased by 91% compared to the January-April period of the previous year. Again, due to the closed auto factories, a 77% contraction in exports and a 20-30% loss in the year-end export target are expected (OSD 2020; Ozarfat 2020).

In April, textiles and ready-made clothing decreased by 60% on an annual basis and retail sales volume decreased by 19.3%. The total production in the white goods sector decreased by 52.3% and domestic sales by 11.4% compared to the previous year. Again, in this period, food sales increased by 12.5%, non-food sales decreased by 36.7% (Adiguzel 2020).

Civil aviation, accommodation and tourism are the top sectors most deeply affected by the crisis. Restricting national and international circulation, travel restric­tions applied to prevent the spread of the virus, flight bans, flight cancellations, closing of border gates ended the flights. Travel restrictions have taken the tourism, accommodation and travel spending to the bottom. According to TURKSTAT statis­tics, tourism revenues decreased by 11.4%, accommodation expenditures decreased by 15.7%, international transport expenditures decreased by 12.1% between January and April compared to the same period of 2019 (Macit and Macit 2020; Soylu 2020).

80% of the aircraft in the Turkish civil aviation sector landed in March. Although there was no flight, operating and personnel costs caused great losses in the aviation industry. The risk of income and job losses still continue for the civil aviation sector due to the uncertainty in front of the pandemic, stagnation in tourism activities and still limited international circulation (Macit and Macit 2020).

The negative effects of the pandemic on employment reveal themselves in the sectors experiencing the greatest contraction. The areas where unemployment risk is most prominent are: manufacturing, wholesale and retail trade, accommodation and food, real estate activities (Balci and Qetin 2020) and civil aviation.

It is estimated that 5.6 million employees will be affected in April-June period. It is estimated that approximately 3.1 million of 16.6 million wageworkers, casual workers and self-employed people working in the non-agricultural private sector were directly affected by the measures taken against pandemic, and 2.5 million were directly affected by the pandemic. In the April-June period of2020, it is estimated that 5 million job losses will be in the service sector and 550 thousand in the manufacturing industry (Yukseler 2020).

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