Russian Jet Downing May Cost Turkey $9 Billion in `Worst Case'

  • Simsek says most likely impact expected to be $2.3 billion
  • Turkey calculates damage to economy from Russian sanctions

Sanctions imposed after Turkey shot down a Russian warplane last month may cost the Turkish economy as much as $9 billion a year in a “worst case” scenario, Deputy Prime Minister Mehmet Simsek said.

The figure is based on a complete halt to Turkey’s economic relationship with its northern neighbor, Simsek said Monday in a televised interview with NTV. A more likely outcome, with reduced overall trade but key shipments continuing, would put the economic impact at around 0.4 percent of Turkey’s gross domestic product a year, he said. That would mean a loss of about $2.3 billion, based on Turkey’s $745 billion economy in the 12 months to June.

Russian President Vladimir Putin has suspended visa-free travel, banned the hiring of Turkish nationals and restricted imports of goods from Turkey since Turkish F-16s downed a Russian warplane on Nov. 24 near the Turkish-Syrian border. The Turkish government is looking for ways to counter the impact of sanctions by its second-largest trading partner, Simsek said.

“I don’t expect to see the relationship being reduced to zero under any circumstances,” Simsek told NTV. “The total impact should be as much as 0.3 to 0.4 percent of our national income. Part of that would be due to the short-term impact of tensions with Russia, while the rest would be due to the state of the Russian economy.”

Persistent sanctions may reduce Turkey’s GDP growth by 0.3 to 0.7 percentage points in 2016, the European Bank for Reconstruction and Development said in an e-mailed report on Monday, with most of the impact related to tourism.

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Erkin Isik, a strategist at Turk Ekonomi Bankasi AS in Istanbul, said last month that Turkey’s foreign-exchange income related to Russia was probably equivalent to about 1.4 percent of GDP.

The number of Russian tourists visiting Turkey was already in decline before the warplane incident, as was the amount of Turkish exports destined for Russia, Simsek said.

The deficit in Turkey’s current-account will probably continue to narrow at a slower pace due to the Russian measures, Simsek said. The shortfall, which Turkey relies on foreign capital inflows to finance, is predicted to decline to around 4.7 percent of GDP at the end of this year, Simsek said. Analysts expect the amount to be 5 percent, compared with 5.8 percent in 2014, according to a Bloomberg survey.

Turkish central bank Governor Erdem Basci said Oct. 28 that the gap would continue to shrink next year due to measures to keep growth of consumer loans in check. Ahead of an expected decision by the U.S. Federal Reserve to raise interest rates, Basci is planning to abandon Turkey’s system of three main interest rates in favor of a single policy rate to provide lira liquidity to commercial lenders.

Simsek gave implicit support for Basci’s plan, saying that Turkey needs to adopt a more “orthodox” monetary policy as some developed market central banks normalize theirs.

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