Civilians look for survivors under the rubble of collapsed buildings in Kahramanmaras, close to the quake’s epicenter, the day after a 7.8-magnitude earthquake struck the country’s southeast, on February 7, 2023.(AFP)

The World Bank reported that the terrible earthquake that struck Turkey on February 6 killed at least 45,000 people, displaced millions in nearly a dozen cities, and caused immediate damage estimated at $34 billion - or almost 4% of the country's annual economic output.

The Turkish Industry and Commerce Confederation estimates that the entire cost of the earthquake is at $84.1 billion, with housing accounting for the lion's share at $70.8 billion, lost national income at $10.4 billion, and missed working days at $2.91 billion.

An Istanbul-based economist at PolitikYol, Arda Tunca, said as quoted by CNN that “I do not recall… any economic disaster at this level in the history of the Republic of Turkey.”

Even before the earthquake, the Turkish economy had been decreasing. The government's unconventional monetary policies fueled surging inflation, resulting in increased economic disparity and a currency crisis that saw the lira lose 30% of its value against the dollar last year. According to Reuters, Turkey's GDP rose 5.6% last year, citing government data.

Economists acknowledged that the quake will exacerbate the economy's structural problems, which might affect the outcome of presidential and parliamentary elections scheduled for mid-May.

Tunca argued that while the physical devastation from the quake is massive, the cost to the country's economy would be less severe when compared to the 1999 earthquake in Izmir, which struck the country's industrial center and killed over 17,000 people.

According to the OECD, the quake-affected districts accounted for one-third of the country's GDP.

It is worth noting that the hardest hit by the February 6 earthquake accounts for 15% of Turkey's population. According to the Turkish Industry and Commerce Confederation, they contribute to 9% of the country's GDP, 11% of income tax, and 14% of agricultural and fishing income.

The big picture

A professor of economics at Koc University in Istanbul, Selva Demiralp, said as quoted by CNN, “Economic growth would slow down at first but I don’t expect a recessionary threat due to the earthquake."

“I don’t expect the impact on (economic) growth to be more than 1 to 2 (percentage) points,” Demiralp added.

There has been growing criticism of the country's preparedness for the quake, whether through economic mitigation programs or efforts to prevent the extent of damage observed in the tragedy.

It is unclear how Turkey will repair its economy and provide for its newly homeless citizens. Analysts and economists say it could be crucial in determining President Recep Tayyip Erdogan's political fate as he seeks re-election.

The government's 2023 budget, issued before the earthquake, called for greater spending in an election year, with a 660 billion lira ($34.9 billion) deficit.

Analysts believe that the government has already revealed certain measures aimed to boost Erdogan's popularity, such as a near-55% increase in the minimum wage, early retirement, and lower housing loans.

Meanwhile, economists argue that Turkey's budgetary position is strong. When compared to economic output, its budget deficit is smaller than that of other emerging markets such as India, China, and Brazil. This allows the government to spend more money.

“Turkey starts from a position of relative fiscal strength,” said Selva Bahar Baziki of Bloomberg Economics as quoted by CNN. “The necessary quake spending will likely result in the government breaching their budget targets. Given the high humanitarian toll, this would be the year to do it,” Baziki added.

She further told CNN that earthquake-related public spending is forecasted to be 2.6% of GDP in the short run, but might gradually rise to 5.5%.

Following the 1999 earthquake, Turkey enacted an "earthquake tax," which began as a temporary measure to help cushion economic damage but later became a permanent levy.

“The funds created for earthquake preparedness have been used for projects such as road constructions, infrastructure build-ups, etc. other than earthquake preparedness,” said Tunca. “In other words, no buffers or cushions have been set in place to limit the economic impacts of such disasters.”

Experts think it's too early to know how the economic downturn will affect Erdogan's re-election chances.