Coronavirus spreading west may threaten Turkey’s key tourism industry
The spread of the coronavirus to Turkey’s eastern neighbour Iran is raising concerns for the Turkish tourism industry and wider economy, which is only just emerging from a currency crisis.
Turkey, which has yet to report any coronavirus outbreaks, needs tourism revenues to earn much-needed foreign currency and to allay investor fears about the wider economy. This week, the lira slid to its lowest levels since May last year, partly on concern about the possible impact of the virus on tourism and economic stability.
Early bookings between November and January had put Turkey on target to earn a record $40 billion from tourism this year, the Turkish Hoteliers Federation (TUROFED) said earlier this month. Arrivals in January jumped by an annual 16 percent to 1.79 million, official figures show. But the outlook appears to be worsening as concerns that Turkey could become a latest hotbed for the virus intensified.
Even though Turkey’s southern tourism hub of Antalya lies 1,850 km from Tehran, the Hotel Association of Turkey (TUROB) said on Monday that bookings nationally were softening, with a slow February and signs of a further downturn in March.
Turkey attracted almost 52 million tourists last year, earning $34.5 billion. An upsurge in revenue from 2018 helped the economy get back on its feet after the currency crisis erupted in the summer of 2018. The government says it expects economic growth of 5 percent in the first three months of this year, matching a figure for the final quarter of 2019.
Any decline in tourism revenues may also increase political pressure on the central bank to persist with a series of rate cuts, which have slashed the benchmark lending rate to 10.75 percent in February from 24 percent in July.
Investors are concerned that further reductions in interest rates – President Recep Tayyip Erdoğan is calling for more to help achieve a 5-percent economic growth target for this year – could destabilise the lira and cause a spike in inflation. Any large-scale outbreak of the coronavirus and its likely negative impact on the economy could spur the increasingly autocratic Erdoğan, who sacked and replaced the central bank’s governor in July, to insist on further monetary easing.
Inflation in Turkey stands at 12.2 percent, putting price increases at about 1.5 percentage points above current interest rates. The central bank’s rate cutting spree is already encouraging some Turks to take their liras out of deposit accounts, which are earning less interest, and to exchange them for dollars, euros or gold. More than half of all bank deposits are now held in foreign currency.
Concerns for the lira’s stability have not gone away since it slumped by 28 percent in 2018. A political crisis with the United States and concerns for economic overheating were behind those declines. The lira followed up the losses with a further drop of 11 percent in 2019. The currency is also down by more than 3 percent against the dollar this year.
Turkey closed its border with Iran on Sunday and halted nearly all incoming flights as a precaution to stop the possible spread of the coronavirus. Fifteen people have died, Tehran said on Monday, a figure that has been disputed by a parliamentarian from Qom, who said 50 people had been killed in the holy city alone.
Iranian visitors to Turkey totalled 2.1 million last year. Many travel in late March to celebrate their New Year.
A person with symptoms of the virus caused a Turkish Airlines plane travelling to Istanbul from Tehran to make an emergency landing at an airport in Turkey’s capital Ankara on Tuesday, industry news portal Airporthaber reported. The person was taken into quarantine after being led off the Airbus A330 jet carrying 132 passengers, the website said.
Shares in Turkish Airlines, the country’s biggest carrier, slumped almost 6 percent on Monday and were down a further 2 percent on Tuesday.
While Iranian tourists made up just 4 percent of total visitors to Turkey last year, many German and Russian tourists – the biggest visitors to the country – have yet to make their final holiday plans. A lockdown in northern Italy is already sparking concerns about the spread of the virus from Europe’s east, prompting a relative upsurge in bookings in places such as Mallorca and Spain.
Furthermore, political tensions with Russia over fighting across the border in Syria’s Idlib province, have already raised concerns that fewer Russians will visit this year. Seven million arrived in 2019, and 4 million Germans.
In 2016, visitors from Russia slumped to fewer than 1 million after Turkey’s air force shot down a Russian military jet flying over the border with Syria and Erdoğan failed to make an immediate apology.