Post-Quake Economics

A look inside the deeply concerning conditions of Turkiye’s economy after the earthquakes

J. C. Lai

Last Monday’s pair of earthquakes in Turkey and Syria were the region’s strongest in nearly a century and sent shockwaves across hundreds of miles. The pair of quakes has resulted in a humanitarian crisis affecting over 23 million citizens, and, as of writing, taken the lives of 29,000 people. However, a look on the other side of the coin reveals the compounded implications resulting from the earthquakes, which has trickled through into the financial markets and macroeconomics within Turkey, which will impact the lives of millions more if not dealt with. 

Initial damages to infrastructure and landscape are estimated to see economic losses of $1 billion and could translate to as much as 6% of Turkey’s GDP according to the U.S. Geological Survey. Though, these impacts can be seen as a good thing for the economy, as the excessive spending from the quakes leads to higher government spending and investment, resulting in higher economic growth for the country. 

This economic growth, however, will likely be counteracted by the fall in productivity as a result of the quakes. According to the WSJ, the impacted regions contribute to 8.5% of exports and 29% of overall production within the country. The damage to infrastructure and capital within these regions will heavily constrain the region’s ability to produce these goods and services, resulting in a fall of exports and an increase of imports. According to the Aggregate Demand Formula, a decrease in net exports will see a fall in economic growth, hence neutralizing the initial economic growth over the long-term. 

The fall in productivity will inevitably see higher inflation due to a decrease in supply. This, compounded with the already present cost of living crisis, with the inflation rate at 57.68% in January, will significantly reduce the purchasing power and savings of consumers. This will especially impact the citizens within the affected area, who have already lost their homes and physical assets. Government aid must therefore be introduced to prevent a sharp rise in poverty rates within these areas.

Unemployment will likely be stable as for now, with the loss of jobs within the impacted areas counteracted with the creation of public-servant jobs as part of rescue missions and medical-aid, as well as construction jobs to repair and rebuild damaged infrastructure and landscapes.

Istanbul’s stock exchange has seen a 15% sell-off between Monday and Wednesday, with the benchmark Borsa Istanbul 100 Index erasing $35 billion in value. This has resulted in the Turkish Bourse deciding to suspend trading until at least February 15th and cancelling all trades executed on Wednesday “to protect investors”. This marks the first time in 24 years that the exchange has stopped trading, revealing the deeply troubling conditions of the financial market which was projected to be headed to its worst weekly performance since the GFC.

https://bit.ly/turkeystockmarket

Local buyers and equity investors have been significantly affected through this share sell-off, as the stock market has been a key hedge used against inflation, with price growth exceeding an annual 85% in October 2022, combating Turkey’s high inflationary environment.

The economic impacts resulting from the Turkish Earthquakes will exacerbate the humanitarian crisis, affecting millions more on a national level. Heavy tightening of monetary policy is required to battle the nation’s high inflation, and a range of fiscal measures will be needed to reduce the impact of the affected population and to ensure economic stability, with further government intervention likely introduced within the Turkish financial market to safeguard local investors.