An Evaluation of the Turkish Economy during COVID-19

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Series Details 1/2021, Number 1
Publication Date January 2021
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Introduction:

In this report, we provide an evaluation of the Turkish economy during the COVID-19 pandemic. We note that the structural reforms that were implemented after the 2001 crisis allowed the banking system to remain on solid ground despite all the challenges brought about by COVID-19. The accommodative policy measures that were adopted by Turkey during the pandemic did generate certain vulnerabilities as a side effect, such as dollarisation of the economy, the erosion of central bank reserves, and excessive credit growth. Nevertheless, the switch to orthodox policy making in November 2020 is a step in the right direction.

We argue that the depreciation of the Lira is an opportunity for foreign investors to take advantage of cheap Turkish assets, once investor confidence is re-established through more conservative policies. Unlike a global contraction that is expected for 2020, Turkish growth in 2020 will likely be close to a positive number. However, the side effects of the accommodative policies which brought an inevitable tightening in financial conditions will likely limit the rebound in 2021.

The remainder of this report is structured as follows. The first section provides a background of the Turkish economy before the pandemic. The next section evaluates the risks and opportunities that are present in the Turkish economy following the pandemic. The third section discusses the policy measures that were adopted during the pandemic, and the fourth section concludes.

Source Link https://doi.org/10.18449/2021WP01
Alternative sources
  • https://www.swp-berlin.org/10.18449/2021WP01/
  • https://www.swp-berlin.org/fileadmin/contents/products/arbeitspapiere/CATS__Working_Paper_Nr_1_2021_Cakmakli_Demiralp_Yesiltas_Yildirim.pdf
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