Turkey’s lira slid one percent on Wednesday to levels last touched during the worst of the 2018 currency crisis as the coronavirus pandemic began weighing on manufacturing and trade.
Turkey has adopted some strict measures to contain the spread of COVID-19, but unlike many other countries it has stopped short of ordering people to stay at home.
A jump in confirmed infections to 13,531 on Tuesday put Turkey 10th globally in the ranking of total coronavirus cases.
Reflecting the sudden downturn, the purchasing managers’ index (PMI) for Turkey’s manufacturing sector returned to contraction in March, dropping to 48.1 from 52.4 a month earlier on softer output and new orders, while firms scaled back purchasing activity amid the outbreak.
The lira weakened to 6.684 against the United States dollar at 14:46 GMT – its lowest level since September 2018, when a currency crisis briefly halved its value and tipped the economy into recession.
Economists say Turkey is on the cusp of another possible recession as the fallout from the coronavirus is expected to slam exports, tourism and domestic demand in the coming months.
In March alone, exports are expected to drop around 17 percent as Turkey’s biggest partners also grapple with the pandemic, Minister of Trade Ruhsar Pekcan told broadcaster NTV. Exports to Iran declined by 82 percent, those to Iraq by 48 percent, to France by 32.5 percent and to Germany by 14 percent, she said.
Turkey’s currency has fallen about 10 percent against the dollar so far this year, though it has fared better than many emerging market (EM) peers amid the coronavirus fallout, which is expected to cause a severe global recession.
“The risk here is a second wave of EM weakness, and it seems to be just starting,” Robin Brooks, managing director and chief economist at the Institute of International Finance, said on an American-Turkish Conference panel.
Turkey’s continued dependence on credit, including an “off-the-charts” expansion in the last few months, leaves it vulnerable, he said.
Istanbul’s main BIST100 share index was down 0.9 percent, while the banking index declined 2 percent on Wednesday.
Ankara has banned international flights, closed schools, bars and cafes, and stopped mass prayers. Yet the confirmed death toll from the outbreak has risen to 214, health ministry data showed.
As part of the official response, the central bank set the stage on Tuesday to raise a limit – currently set at about 33 billion liras ($5bn) – on the amount of government debt it can buy this year.
The bank said it is also ready to conduct quantitative easing bond buying in a “front-loaded manner” to help finance what is expected to be a ballooning budget deficit as Ankara spends to ease a sharp economic slump.
For a period, dealer banks will also be able to sell to the central bank debt purchased from the Unemployment Insurance Fund, which has 131.6 billion lira ($20bn) and which will be tapped aggressively in coming months.