Earthquake sends tremors through Turkey’s already fragile economy
ISTANBUL — Turkey was already battling runaway inflation and relying on rich allies for funding to keep its economy afloat when a massive earthquake killed tens of thousands, razed entire cities and left millions needing urgent help.
Now, it must pour billions of dollars into rebuilding 11 southeastern provinces flattened by the February 6 tremor — the worst disaster of its post-Ottoman history.
That money will have to come on top of the billions of dollars in election promises that President Recep Tayyip Erdogan has made in the run-up to crucial polls still tentatively planned for May 14.
All this cash could turbo-charge consumer spending and industrial production — two key indicators of economic growth.
The problem for Erdogan, however, is that Turkey is very short on funds.
The central bank’s vanishing coffers have been replenished by assistance from Russia and oil-rich Gulf states, which has helped Turkey spend tens of billions of dollars propping up the lira in the past few years.
But economists believe that money is only sufficient to keep Turkey’s finances in order — and the troubled lira from collapsing — until the May polls.
Now, Erdogan must repair some $84.1 billion in quake damage, according to an estimate from a prominent business group.
Other experts’ estimates are more conservative, putting the total closer to $10 billion.
With elections in mind, Erdogan has already promised to provide new homes to the millions affected within a year.
Should he find the cash, leaning heavily again on foreign donors, Erdogan will need to allocate much of it to the construction sector to rebuild parts of Turkey from the ground up.
Although contractors are now being blamed for following lax standards that allowed so many buildings to crumble, Erdogan relied on the sector to modernize much of the country with airports, roads and hospitals.
“The boost to output from reconstruction activities may largely offset the negative impact of the disruption to economic activity,” the European Bank for Reconstruction and Development (EBRD) said.
For the overall economy, at least, there are glimmers of hope.
The area affected is one of Turkey’s least developed, contributing only nine percent to gross domestic product (GDP).
But Turkey’s agricultural production could take a hit.
Unay Tamgac, associate professor of economics at Ankara’s TOBB ETU University, said the region creates 14.3% of Turkey’s total agriculture, fishing and forestry output.
The region is a global exporter of food such as apricots, she added, warning there could be a knock-on effect on prices.
The UN’s Food and Agriculture Organisation has warned of disruptions to basic food production in Turkey and Syria.
Better than 1999?
The quake also damaged energy facilities, infrastructure, transportation, irrigation and logistics, added Tamgac.
Some look back to history for guidance.
Mahmoud Mohieldin, an executive director at the International Monetary Fund (IMF), said the 7.8-magnitude tremor could hurt the economy less than a 7.6-magnitude quake in 1999, which claimed more than 17,000 lives.
An IMF spokesperson later said Mohieldin was speaking in a private capacity and not representing the fund’s official view.
The Turkish economy weakened by around 0.5 to 1.0% of GDP in 1999. But that tremor hit the country’s industrial heartland — including economic powerhouse Istanbul.
The economy quickly rebounded, however, growing by 1.5% of GDP in 2000 thanks to reconstruction efforts, the EBRD said.
Last week’s quake also “did not affect areas farther west favored by foreign tourists, who have become one of Turkey’s most important sources of foreign exchange,” Wolfango Piccoli, an analyst at Teneo consultancy, said in a note.
The focus, then, is where Erdogan will get the cash to spend on rebuilding.
“It’s clear there will be a need for foreign currency,” said Baki Demirel, associate professor of economy at Yalova University, since Turkey will now import more.
Turkey’s sovereign debt levels are relatively low, meaning the government has some leeway to issue long-term debt.
On the downside, foreign investors have shunned Turkey because of Erdogan’s unorthodox economic views, which include an ill-fated attempt to fight inflation by slashing interest rates.
When the quake hit, Turkey’s annual inflation rate had slowed from a two-decade high of 85% last year to 58%.
With all the headwinds, economists agree the economy will stall in the coming year.
“Despite the uncertainty and different factors at play, such as global economic conditions and internal political expectations, the Turkish economy is likely to stagnate or grow below its natural rate,” economist Murat Kubilay wrote in a note online.
Lower taxes, more government spending: What might Quebec’s next budget include?
The province’s economy is currently doing better than many expected, so the Quebec government will have some wiggle room in drafting this year’s budget, set to be unveiled on Tuesday.
What does that mean? More Quebecers are employed with good jobs than some economists had forecast. Crucially, for Finance Minister Eric Girard’s budget math, that also means those people are paying more taxes and fewer people are relying on social safety net programs.
That is welcome news for a government that has foreshadowed both spending increases and tax relief in its upcoming budget — “having your cake and eating it too,” according to some economists and political analysts.
It’s a strategy economists usually warn against. When the economy is going well, they say, governments shouldn’t necessarily offer tax relief but should instead take advantage of increased tax revenues to pay down debt — which Quebec has a lot of, some of which is due to recent expensive COVID-19 and inflation relief plans.
But that isn’t what the budget is likely to show on Tuesday. As usual, the finance minister has been close-lipped about the contents of the documents, but Girard did say that the government will stick to the commitments it made during last year’s election campaign — which likely means more spending, not less, along with a tax cut that some are criticizing as untimely.
So, here’s what you can expect:
One controversial promise that the CAQ has made is a pledge to cut taxes by one per cent for the two lowest tax brackets.
If the government comes through on that promise, which Girard has suggested it will, that would save a taxpayer earning $55,000 a year $378, but it will save higher-income earners even more.
During the election, Legault said Quebecers making $80,000 a year would save $630 in taxes per year.
It’s a proposal that has some economists raising their eyebrows.
Nearly 35 per cent of Quebec’s population will not earn enough income to benefit from the tax break according to l’Institut de recherche et d’informations socioéconomiques (IRIS).
“It would be an unfair tax cut because it would mainly favour taxpayers with higher incomes,” said Guillaume Hébert, a researcher with IRIS, in an interview.
The government has said the $2-billion measure would be paid for by the government reducing its payments to the Generations Fund, a rainy day fund.
That money, IRIS contends, would be better spent in the public sector, in the health or education system, for example.
The timing of the tax cuts, when the government is handling debt from COVID-19 relief measures and is promising to increase spending, is also causing concern.
“At some point, you want to make these promises, that’s fine,” said Moshe Lander, a senior lecturer in economics at Concordia University, “but it has to be accompanied by government spending cuts elsewhere or higher taxes, not lower taxes.”
But that isn’t what most observers expect.
In the lead-up to the 2022 election, where the CAQ secured a second four-year mandate, François Legault’s party made lots of expensive promises — $29.6-billion worth.
Not all of those promises are expected to appear in this year’s budget, but spending increases are likely.
“I think that they will increase health-care spending quite significantly and I think education is a major priority,” said Daniel Béland, the director of the McGill Institute for the Study of Canada. “So it’s a government that likes to be popular, right? [Legault] doesn’t like to bring bad news.”
It’s a combination, Béland said, of tax reductions and spending increases that appears to makes more sense as a political decision than an economic one.
It’s also a combination that would lead to a greater budget deficit — which happens when the government is spending more on programs than it receives from taxes.
But that deficit, Lander predicts, will be lower than expected – possibly around the $5-billion mark. A lower deficit than expected, however, deserves no praise because it is coming because of economic prosperity that the government did not engineer, he said.
“When a government tries to take credit for that and says that, you know, the deficit is smaller, they don’t deserve a pat on the back,” said Lander.
The smaller deficit, however, will allow them to couch the budget in optimistic language and a commitment to get back to budgetary equilibrium at some point down the line, Lander predicts.
“They’re gonna create the magic act of smaller deficit than expected on a path to balancing budget while at the same time cutting taxes and raising spending.”
Japan, Singapore, Hong Kong downplay effect of Credit Suisse woes
Asian financial authorities say Swiss lender’s takeover not likely to affect stability of local banks.
Financial authorities in Asia have moved to downplay the local fallout of the turmoil at Credit Suisse, saying they do not expect the takeover of the troubled Swiss bank to affect the stability of local lenders.
The Monetary Authority of Singapore (MAS) said on Monday that Credit Suisse would operate as normal in the city-state, with customers having full access to other accounts, following the lender’s purchase by UBS Group over the weekend.
“The takeover is not expected to have an impact on the stability of Singapore’s banking system,” MAS said in a statement.
“MAS will continue to closely monitor the domestic financial system and international developments, and stands ready to provide liquidity through its suite of facilities to ensure that Singapore’s financial system remains stable and financial markets continue to function in an orderly manner,” the city-state central bank said.
Hong Kong’s Monetary Authority (HKMA) and the city’s Securities and Futures Commission said that Credit Suisse is open for business as usual and the bank’s local assets of 100 billion Hong Kong dollars ($12.7bn) represent less than 0.5 percent of the total in the Chinese territory’s banking sector.
“The exposures of the local banking sector to Credit Suisse are insignificant,” HKMA said in a statement. “The Hong Kong banking sector is resilient with strong capital and liquidity positions. The total capital adequacy ratio of locally incorporated authorised institutions stood at 20.1 percent at the end of 2022, well above the international minimum requirement of 8 percent.”
In Japan, Chief Cabinet Secretary Hirokazu Matsuno welcomed moves by regulators to shore up confidence and said he did not expect the turmoil at lenders in Europe and the United States to spread to local banks.
“Japan’s financial system is stable as a whole,” Matsuno said.
The announcements came as markets in Asia slid in early morning trading on Monday amid persistent jitters over the health of the global financial system, with key indexes down in Japan, South Korea, Hong Kong and Australia. China’s blue-chip CSI300 and Shanghai Composite Index made gains, as new monetary-easing measures by Beijing helped to offset the concerns about global banking.
UBS, Switzerland’s largest bank, agreed to buy Credit Suisse for 3 billion Swiss francs ($3.24bn) on Sunday amid a growing crisis of confidence in the global banking system.
The Swiss government said the deal was necessary to prevent economic turmoil from spreading throughout the country.
Credit Suisse, which last week received a $54bn cash injection from the Swiss central bank, is the latest financial institution to face a loss of confidence following the collapse of Silicon Valley Bank and Signature Bank in the US.
The Zurich-based lender is among the world’s largest wealth managers and one of 30 banks considered to be of systemic importance to the global economy.
What Financial Crisis? US Economy Has Investor Backing, Survey Shows
(Bloomberg) — Markets have been trading as if the end of the world is at hand – but what most participants see, behind the recent financial turmoil and contagion fears, is a still-strong US economy, the MLIV Pulse survey shows.
The collapse of three US banks and the scramble to rescue others, including Europe’s Credit Suisse Group AG and First Republic Bank, sent stocks and bond yields plunging. Bets on Federal Reserve monetary tightening got dialed back, swap contracts reflect expectations for rate cuts within months, and recession warnings are ramping up.
Yet the world foreseen in those trades is hard to square with the one outlined by 519 investors, retail and professional, who took part the MLIV survey between March 13-17. Most respondents believe that a hard landing will be averted, with about two thirds predicting that the economy is either heading toward a soft landing, accelerating or cruising.
Most lean toward a scenario in which the Fed ekes out some more rate hikes, to bring inflation closer to target.
The survey findings suggest a mismatch between what investors see see as the likely economic outcomes, and the direction that trades have taken — driven by market momentum and concern that banking troubles could snowball.
“The thing about contagion risk is, it’s really about the spread of irrational fear,” said Greg Peters, co-chief investment officer of fixed income at PGIM.
The Swiss National Bank’s pledge of support for Credit Suisse helped calm the chaos. And the European Central Bank, which went ahead as planned with a half-point increase in interest rates on Thursday, suggested inflation-fighting hasn’t moved to the back burner for central banks – even though the ECB avoided signaling what comes next.
Read More: ECB Feared That Ditching Half-Point Hike Might Panic Investors
This week it’s the Fed’s turn. The US central bank still enjoys investor confidence, according to the MLIV survey. More than 60% of retail and professional investors alike said it hasn’t lost credibility.
Investors see the March 22 decision as being between a pause – on financial stability concerns — and a quarter-point hike to continue the inflation-busting campaign.
One key question is how much of the Fed’s desired financial tightening will now happen as a result of banks turning cautious. Credit spreads are an important channel through which market distress affects the real economy. So far, they haven’t widened to a degree that implies a significant slowdown.
Goldman Sachs Group Inc. economists estimate the likely impact from tighter lending conditions at up to 0.5% of US gross domestic product – a significant hit, but not commensurate with the degree of alarm on markets. The Goldman team continues to predict a soft landing, consistent with MLIV survey respondents.
The banking turmoil has clearly had a psychological impact, as well as shifting the Fed outlook. Almost half of MLIV respondents said a 50-point hike next week, the base case not long ago, would add to financial-system risks after the collapse of Silicon Valley Bank — the biggest US bank failure since the 2008 aftermath.
Read More: New Fed Bank Backstop Has Scope to Inject as Much as $2 Trillion
“The Fed is still on a long-run path of tightening policy to bring inflation down,” said Darrell Duffie, a Stanford University finance professor. “The most likely path for the Fed is that there’s a temporary pause in rates, maybe just until the next meeting after this coming one, and then the Fed would resume as dictated by data on inflation concerns.”
For the Fed, a big real-economy shock stemming from this month’s financial events is a risk, not a foregone outcome or even a likely one – while persistently high inflation is a fact, one that policymakers have battled against for a year with little progress to show so far.
So even if the US central bank chooses to pause this week, it could be a hawkish pause, one that allows markets to stabilize but increases the risk of more hikes to come.
Last Jenga Block?
Fed officials have flagged the hiring boom and rising wages as one of the main inflationary threats. A majority of MLIV respondents said the jobs market is either softening already or will do soon. Roughly one-third said that the shortage of workers means there may not be much cooling this year, and that higher rates will instead compress profit margins.
The Bloomberg Economics view is that a soft landing remains an outside bet, with a 75% chance of recession in the third quarter of this year. Fed hikes have in the past mostly ended up breaking things, and this cycle is likely no exception.
US INSIGHT: Recession Models Don’t Share Soft-Landing View (1)
That’s broadly the signal sent by plunging yields in the past week, according to Matthew McLennan, co-head of the global value team at First Eagle Investment Management.
“The bond market is telling you that the last block has been taken out of the Jenga stack by the Fed,” he said. After all the banking stress, “lending growth will probably slow — which raises the probability that nominal growth slows. You can see how this could translate to a recession.”
MLIV Pulse is a weekly survey of readers of the Bloomberg Professional Service and website, conducted by Bloomberg’s Markets Live team, which also runs a 24/7 MLIV Blog on the terminal. To subscribe to MLIV Pulse stories, click here.
So, What Was Bad About The ‘Diablo 4’ Beta? – Forbes
More dead birds found in Caledon could be linked to bird flu | inBrampton – insauga.com
Deep Impact: Heat Waves Happen at the Bottom of the Ocean Too – SciTechDaily
Silver investment demand jumped 12% in 2019
Iran anticipates renewed protests amid social media shutdown
Search for life on Mars accelerates as new bodies of water found below planet’s surface
News13 hours ago
Inflation, National and Private Debt, Possible Economic Collapse
Real eState16 hours ago
In Europe, Home Sales to Americans Are on the Rise
Tech14 hours ago
Welcome to the Luddite Revolution
Tech17 hours ago
Final Fantasy 16 will take you about 35 hours to beat, 70-80 hours to complete
Business18 hours ago
Fed, other central banks set joint liquidity operation
Health14 hours ago
Japanese Bento Spot On Robson Street Closes After 10 Years Of Operation
Real eState13 hours ago
Real estate investor pleads guilty to fraud on $149M loan
Business13 hours ago
Canada among central banks banding together to calm markets after UBS deal to buy Credit Suisse