Turkey has had impressive economic growth over the past two decades. This helped the country lower its unemployment rates, increase incomes and become an upper-middle-income country. All these can be traced to the government's ambitious plans especially targeting vulnerable citizens.
The influx of about 3.6 million refugees from Syria and the slowdown in the country's economic reforms had made it's economy vulnerable to risks. The slow-down in reforms in several areas in recent years, together with other economic vulnerabilities and risks had reversed some of the progress made to date. The COVID-19 pandemic thus further weakened the country's economy and is likely to have a lasting impact on the country's microeconomics.
Recent Economic Developments
The onset of the COVID-19 shook the economy of the country leading the country's GDP to contract by about 10% in the second quota when compared to a similar period in the previous year. At the height of the pandemic, exports declined by 21% while imports dropped by 4%. This resulted in a deficit of about $20 billion.
To help manage the impact of the COVID-19 pandemic, the country's central banks working with the government put in place a number of liquidity measures to increase the money supply. The government loosed microeconomic regulations and then provided financing to support health services, furloughed works and affected households.
Given the state of the economy before the pandemic, this measures only slowed down the impact. The economy continued in a downward spiral throughout the year. By August 2020, the Turkish lira had depreciated by about 29% against the United States dollar in the year. This pushed inflation to over 10%.
Despite suffering from the shocks of the COVID-19 pandemic all is not lost for the Turkish economy. It is expected that the economy will experience sharp growth rate in 2021 and is likely to reverse most of the negative impacts of the pandemic. The economic growth rate is expected to reach about 4% by the end of the year. However, it is important to remember that these figures are simple predictions and the economy may experience a high growth rate by the end of the year.
It is also expected that inflation will remain high throughout the year, hovering around 10% until the end of the year. The export sector is likely to recover fully during the year. However, the deficit is likely to remain high as more resources are mobilized to combat COVID-19. The 2021 year will be marked by growth however, this will quickly reach the levels before the pandemic as the COVID-19 impacts linger.
While the economy is expected to rebound from the impacts of the COVID-19 pandemic, it is expected that the poverty rate will remain above 8% in 2021. The pandemic pushed the poverty rate to 9% in 2020 as a result of the loss of income, especially among low-income earners. While the economy has started to turn around it will take time before businesses are back at their pre-pandemic levels and this will impact income for both employees and small business owners.
According to the World Bank, the Turkish economy has a positive outlook for 2021 with the economy projected to grow by 4.5%. However, the growth rate will be determined by many factors including the global economy and how the country will manage the COVID-19 infections.