Automotive Exports March 2021

sharp slowdown in Turkey’s economy in
the second quarter, and the government
has taken a series of measures to ease the
burden and revive activity.
Rising COVID-19 cases throughout the
country prompted the government to
reimpose measures as of November as
it adopted lockdowns for weekends and
nighttime curfews on weekdays.
As part of the relief package announced in
spring last year, the government provided
financial support to cushion the economic
fallout from the outbreak. It had slashed
taxes for hard-hit sectors and unlocked
funding for workers.
President Recep Tayyip Erdoğan announced
the grant and rental support for businesses
and promised to continue discounts for
value-added taxes.
Although the outbreak caused a decline in
economic activity and employment in the
second quarter of 2020, the IMF said the
initial policy response to the pandemic led to
a sharp rebound in the GDP.
“The early stimulus relied primarily on
rapid monetary and credit expansion,
including policy rate cuts, cheap and rapid
lending growth by state-owned banks, and
administrative and regulatory measures
designed to boost credit,” the statement
said. Turkey implemented direct fiscal
measures of around 2.5% of GDP in 2020,
mainly in the form of tax deferrals and
employment support, but more “targeted
and temporary” fiscal support was needed,
the IMF said. The IMF emphasized that these
measures helped the economic activity
rebound strongly in the third quarter to
above pre-pandemic levels in Turkey, which
is among the few countries estimated to
have posted positive overall growth in 2020.
“Turkey has some fiscal space to expand
support in 2021, possibly in the order of
1% of GDP. Additional social transfers to
vulnerable households and informal workers
would help support those most affected by
the pandemic,” it noted.
“Despite some fiscal space, direct fiscal
measures amounted to just 2.5% of GDP,
mainly in the form of tax deferrals, but also
including employment support,” it added.
“Employment is expected to continue to
recover slowly as the pandemic subsides,”
the IMF said.
The country’s unemployment rate stood
at 12.7% in October, according to official
data. The IMF staff projected that Turkey’s
inflation would fall modestly by the end of
2021 but would remain well above target.
The annual inflation increased to 14.6% in
November, according to the official data.
Month-on-month, consumer prices rose
1.25% in the month. The higher-thanexpected
rise in consumer prices has kept
the pressure on the central bank to maintain
a tight monetary policy. The Central Bank
of the Republic of Turkey (CBRT) has hiked
interest rates to 17% from 10.25% since
November and promised even tighter
policy if needed as he vowed to decisively
battle inflation. On the other hand, Turkey’s
current account deficit is expected to fall to
3.5% of GDP, in large part, reflecting lower
gold imports and a modest recovery of
tourism, according to the IMF.
45 March 2021