Turkish economy heading for 'sharp' contraction in second quarter, says Fitch analyst

Duvar English

Douglas Winslow, a director in Fitch’s sovereign team, has predicted a “sharp” contraction for Turkey's economy in the second quarter followed by perhaps some normalization in the third.

Turkey’s economy has come to a virtual standstill under a voluntary quarantine, with confirmed cases of the virus rising sharply to over 10,000 with 168 dead.

In recent days the central bank’s governor and a deputy have stressed publicly that they can act quickly and strongly to further backstop financial markets and the economy, which economists think could tip into a recession through mid-year.

“There are signs that absent further currency pressure, the central bank sees room for another sizeable [interest] rate cut which risks greater market volatility,” Winslow told Reuters.

Turkey’s already negative real interest rates, relatively large external financing requirements and the central bank’s weak credibility should limit any monetary easing, Winslow said.

However a Turkish official told Reuters the bank will “no doubt” continue to take precautionary measures as needed. “Incentives will only be implemented once the social measures are loosened,” the official said, requesting anonymity.

Central Bank Governor Murat Uysal said the measures taken would limit the epidemic’s impact. Depending on the data and news flow, the bank “will use all its policy instruments strongly…for the efficient functioning of the financial markets and transfer mechanism,” he added on Twitter last week.

The central bank’s next policy meeting is set for April 22.