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.
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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.
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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.
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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.
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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.
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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.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
