COVID-19 and Turkey: Take II

TURKEY - Report 22 Mar 2020 by Murat Ucer and Atilla Yesilada

With 947 cases and 21 deaths having been reported from the virus as of Sunday, we upgrade our assessment for Turkey to a pandemic. Currently, diagnosed cases/tests ratio runs around 9%, with an average of 3,300 tests. As tests increase to 10K a day and encompass high-risk groups, the cases ought to increase at an accelerating rate. In response, the administration brought the country to the doorstep of a nationwide quarantine or “stay home” decree.

While a nationwide quarantine appears necessary, the enforcement mechanism to discourage violators is still not in place. Turkey’s non-fam unemployment rate already stands at over 15%, which should increase very rapidly, as most of the service sector is suffering from shutdowns. We detect rising exasperation by labor and small businesses about the inadequacy of financial aid to compensate for lost income, which should reflect inversely to President Erdogan and AKP’s ratings. Moreover, the message given to the society that the epidemic will be over once warm weather starts doesn’t reflect the consensus of the medical community, which means the public is not being prepared for a drawn-out battle against COVID-19. False expectations created by the government could also backfire in poll ratings.

On the economy front, we feel Ankara has yet to come to grips with the severity of the shock, judging from Minister Albayrak’s statements and the inadequate nature of the measures that have been taken so far. We partly empathize because Ankara, as we’ve noted earlier, does not have the funds, or more broadly, the wherewithal. A more comprehensive and realistic plan should nevertheless be drawn up, but Ankara insists on following its own playbook again, as the CBRT continues to waste precious reserves to stabilize the lira, against a deadly mix of lower interest rates and more (lira) liquidity provision.

As far as the markets go, the week in risky assets ended with another massive sell-off, as a credit crunch and strong dollar took their toll on EM.

Note that there will be no additional, weekly report today.

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