Turkey's half-baked lockdown will end up costing more
It is normal for economic growth forecasts to differ in Turkey and across the globe. After all, there are many assumptions and different statistical models behind that single number.
But during his stint of almost two decades as an economist at think-tanks, international institutions and banks, as well as a freelancer providing forecasts for different organisations, your friendly neighborhood economist has never witnessed growth projections on Turkey differ so much.
This is to be expected: After all, the country’s economic growth rate will depend on how long the coronavirus pandemic lasts and how quickly consumers and businesses will return to their normal behavior once the virus is under control.
Another source of uncertainty is the government’s response - not only in terms of lockdowns and other measures, but also of state support. Finally, it will also matter how the rest of the world continues to react to the pandemic, especially for Turkey’s exporters.
At one end of the spectrum, the World Bank is one of the few institutions still expecting Turkey to attain positive economic growth (0.5 percent) this year. While the Turkish Industry & Business Association (TÜSİAD), a group representing Turkey’s biggest companies, has not published any official projections, its president, Simon Kaslowski, told the Cumhuriyet newspaper that it saw small but positive growth this year.
Meanwhile, academics Güven Sak and Fatih Özatay, who are affiliated with Ankara think-tanks TEPAV and TOBB-ETU, have made so-called “back-of-the-envelope” calculations to include assumptions on the changes to various items of Turkey’s gross domestic product (GDP). They found that, should the crisis last for the whole year, the economy would contract by a whopping 38 percent.
Middle Eastern Technical University professor Erol Taymaz takes Sak and Özatay’s analysis one step further by looking at linkages between different sectors. In his baseline scenario, implicitly assuming that the pandemic lasts the whole year, he said GDP would contract by 23.5 percent. However, according to his calculations, economic policies could reduce this decline by as much as 10 percentage points.
Even though economics is commonly referred to as the dismal science, these grim projections should not depress you. After all, they are based on extremely pessimistic assumptions on the pandemic. Under the more reasonable assumption that “the pandemic and required containment peaks in the second quarter, and recedes in the second half of this year”, the International Monetary Fund projects that the Turkish economy would contract 5 percent in 2020 before bouncing back in 2021 with a growth rate of 5 percent.
The government’s response, not only in terms of stimulus but also social distancing rules, will also be a very important determinant of the extent of the economic slowdown. This is illustrated by Koc University professor Selva Demiralp. Summarizing the results of a paper she is working on with several co-authors, she notes that “under a partial lockdown scenario similar to the status quo” the virus would be contained in 190 days, during which time GDP would decline by 17 percent.
The researchers found that, if a full lockdown had been enacted when the number of cases hit 70,000, the pandemic would have been under control much faster, in 42 days, during which time GDP would have fallen by 7.8 percent.
The longer a full lockdown is delayed, the more costly it becomes for the economy. For example, the economists’ simulations showed that if the full lockdown had been enacted one day after reaching 70,000 cases, it would have taken 44 days to contain the pandemic. Every day the lockdown is delayed increases the length of the lockdown - and consequently corresponds to 0.4 percent of additional lost GDP.
In a TV interview on April 16, soon after Demiralp’s note was published, İbrahim Kalın, the spokesperson of President Recep Tayyip Erdogan, claimed that the cost of a full lockdown to the economy would have been very heavy:
“Sometimes, people may come up with such recommendations with good intentions, but without underlying scientific data,” Kalın said. If he had read Demiralp’s note, Kalın would have seen that the case for a full lockdown is actually based on scientific data.
Or maybe he had read the document and is well aware of the consequences of a partial lockdown. It could be that the government prefers a larger, but more gradual loss in GDP spread over the course of several months to a sudden plunge in just over a month. This approach would result in more infections and deaths, but after all, as Joseph Stalin allegedly said, “you can’t make an omelet without breaking eggs”.
The half-baked Turkish lockdown could be one of the most expensive “corona omelets” of 2020 - not only in terms of its cost to the economy but also in human lives…