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Earthquake sends tremors through Turkey’s already fragile economy

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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.

Turkish President Recep Tayyip Erdogan talks to the press as he visits the hard-hit southeastern Turkish city of Diyarbakir, five days after a 7.8 magnitude earthquake struck the border region of Turkey and Syria, on February 11, 2023. (Ilyas Akengin/AFP)

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.

Reconstruction boost

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.

Turkish optician Cuneyt Eroglu, 45-year-old, reacts as he stands in front of his shop in Antakya on February 18, 2023. (Al-Doumy/AFP)

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.

Residents support a woman in front of a destroyed building in Duzce, the epicenter of the 12 November 1999 earthquake, measuring 7.2 on the open-ended Richter scale, that shook northwestern Turkey, killing at least 452 people and injuring another 2,300. (Manoocher Deghati/AFP)

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.

Headwinds

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.

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Theo Argitis: Taking stock of Canada’s complicated economy before tomorrow’s Bank of Canada decision – The Hub

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Theo Argitis: Taking stock of Canada’s complicated economy before tomorrow’s Bank of Canada decision  The Hub

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Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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