Disruption to construction in Turkey as economic outlook worsens

22 April 2020 (Last Updated April 23rd, 2020 11:16)
Disruption to construction in Turkey as economic outlook worsens

Despite being one of the most affected countries by the Covid-19 outbreak, Turkey’s government has thus far taken a liberal approach in its response to the virus outbreak, with Turkey being one of a few countries in Europe which has not implemented a full-scale nationwide lockdown. Turkey has so far reported over 74,000 confirmed cases and 1,600 deaths linked to Covid-19, and the government has implemented partial lockdown measures, including issuing stay at home orders for those over the age of 65 and under the age of 20.

While public places and most small businesses have been closed, the construction sector in Turkey has thus far been exempted from the lockdown measures imposed in the country. On 6 April, the government announced it was building two new hospitals in Istanbul with a combined capacity of 2,000 patients; construction of the new hospitals is expected to be completed in May. However, there have been reports of disruption on several construction sites, including the $1.7bn Galataport development, where workers have been protesting following the death of a construction worker who contracted Covid-19. The contractors in charge of the project have agreed to shut down the site until 3 May following the protests.

Disruption in the Turkish construction sector, which accounts for 10% of GDP, comes at a precarious time as the economic outlook in Turkey worsens. Before the crisis, the country was in a vulnerable macroeconomic position, and reflecting its weak fiscal position, the government’s fiscal support measures have been significantly lower than those announced by other European states, and Turkey’s unorthodox response to the virus outbreak has spooked investors. The lira has come under pressure in the last few weeks, falling to its lowest level against the dollar in 18 months. Turkish President Tayyip Erdogan has already ruled out requesting financial assistance from the International Monetary Fund (IMF) in order to ease the country’s financing concerns.

The depreciation of the lira coupled with the worsening economic conditions is expected to severely weaken growth in the Turkish construction sector. If the lira remains weak, the government may delay some of its more ambitious infrastructure projects that had been expected to drive growth in the sector prior to the virus outbreak, when GlobalData had been expecting a return to growth for the Turkish construction industry following a contraction in 2019. However, the worsening economic conditions and health situation in the country, has led to a downward revision of the forecast, with a contraction of 2.8% expected in 2020. A further downgrade of the forecast is likely if the economic situation continues to deteriorate.