This is life in the shelters of Turkey after losing everything 3:08
(CNN) --
The devastating earthquake that struck Turkey on February 6 killed at least 45,000 people, left millions homeless in nearly a dozen cities and caused immediate damage estimated at $34 billion, approximately 4 % of the country's annual economic output, according to the World Bank.
But the indirect cost of the earthquake could be much higher.
Not to mention, recovery will be neither easy nor quick.
The Turkish Confederation of Enterprises and Businesses estimates the total cost of the earthquake at US$84.1 billion, most of which would be for housing: US$70.8 billion, with an estimated loss of national income of US$10.4 billion and a loss of working days of US$ 2,910 million.
"I don't remember... any economic disaster of this level in the history of the Republic of Turkey," said Arda Tunca, an economist at PolitikYol in Istanbul.
The Turkish economy had slowed down even before the earthquake.
The government's unorthodox monetary policies led to rising inflation, which translated into greater income inequality, and a currency crisis that saw the lira lose 30% of its value against the dollar last year.
The Turkish economy grew 5.6% last year, according to Reuters, citing official data.
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Economists say that these structural weaknesses in the economy will only be made worse by the earthquake.
Also that they could determine the course of the presidential and parliamentary elections scheduled for mid-May.
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Still, Tunca says that while the physical damage from the quake is colossal, the cost to the country's GDP will not be as pronounced when compared to the 1999 Izmit earthquake, which devastated the country's industrial heartland, causing more than 17,000 injuries. dead.
According to the OECD, the areas affected by that earthquake represented a third of the country's GDP.
The provinces most affected by the earthquake on February 6 account for about 15% of Turkey's population.
According to the Turkish Confederation of Enterprises and Businesses, they contribute 9% of the national GDP, 11% of income tax and 14% of income from agriculture and fishing.
"Economic growth would slow down at first, but I don't expect a threat of recession due to the earthquake," says Selva Demiralp, a professor of economics at Istanbul's Koc University.
"I don't expect the impact on (economic) growth to be more than 1 or 2 (percentage) points."
Criticism of the country's preparedness for the earthquake, whether through policies to mitigate the economic impact or to prevent the magnitude of the damage seen in the catastrophe, has been on the rise.
It is not yet known how Turkey will rehabilitate its economy and how it will care for the people left homeless.
But, according to analysts and economists, it could be crucial in determining the political fate of President Recep Tayyip Erdogan, who is seeking a new term.
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Strong fiscal position
The government's 2023 budget, published before the earthquake, had called for increased spending in an election year, anticipating a deficit of 660 billion lira ($34.9 billion).
The government has already announced some measures that analysts say are designed to shore up Erdogan's popularity, such as a nearly 55% increase in the minimum wage, early retirement and cheaper housing loans.
Economists say Turkey's fiscal position is strong.
Its budget deficit, compared to its economic output, is smaller than that of other emerging markets such as India, China and Brazil.
This gives the government room for spending.
"Turkey starts from a position of relative fiscal strength," says Selva Bahar Baziki of Bloomberg Economics.
"The spending needed to deal with the earthquake is likely to cause the government to miss its budget targets. Given the high humanitarian cost, this would be the year to do it."
Public spending related to the earthquake is estimated at 2.6% of GDP in the short term, he told CNN, but could reach 5.5%.
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Governments often cover budget deficits by borrowing more or raising taxes.
According to economists, both options are likely.
But post-quake taxation is already a sensitive issue in the country, and could prove risky in an election year.
Following the 1999 earthquake, Turkey introduced a "seismic tax" that was originally introduced as a temporary measure to help cushion economic damage, but was later converted into a permanent tax.
There has been concern in the country that the state has squandered that tax revenue, and opposition leaders have called on the government to be more transparent about what happened to the money collected.
When asked in 2020, Erdogan said the money "was not spent outside of its purpose."
Since then, the government has said little else about how the money was spent.
"Funds created for earthquake preparedness have been used for projects like road construction, infrastructure construction, etc., other than earthquake preparedness," Tunca said.
"In other words, no caps or buffers have been put in place to limit the economic repercussions of such catastrophes."
The Turkish presidency did not respond to CNN's request for comment.
Analysts say it is too soon to know exactly what impact the economic fallout will have on Erdogan's re-election prospects.
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The president's approval rating was low even before the earthquake.
In a survey conducted in December by the Turkish research company MetroPOLL, 52.1% of respondents did not approve of him as president.
A poll conducted a month earlier revealed that a slim majority of voters would not vote for Erdogan if an election were held that day.
However, two polls conducted last week showed the Turkish opposition had failed to win new support, Reuters reported, citing partly its inability to name a candidate and partly its lack of a tangible plan to rebuild quake-ravaged areas.
electoral desertion
Most of the provinces hardest hit by the earthquake voted for Erdogan and the Justice and Development Party (AKP) in the 2018 elections, but in some of those provinces, Erdogan and the AKP won handily. a plurality of votes or a slim majority.
Those provinces are some of the poorest in the country, according to the World Bank.
Research carried out by Demiralp and academics Evren Balta of Ozyegin University and Seda Demiralp of Isik University revealed that while the high degree of partisanship among voters of the ruling AKP is a strong obstacle to electoral desertion, economic and democratic failures could tip the balance.
"Our data shows that respondents who say they can make ends meet are more likely to vote again for the AKP in power," the research concludes.
"However, once worsening economic fundamentals push more people below the poverty line, the chance of defection increases."
This could allow opposition parties to wrest votes from incumbents "despite identity divisions by targeting economically and democratically dissatisfied voters through clear messages."
For Tunca, the economic consequences of the earthquake pose a real risk to Erdogan's prospects.
"The magnitude of Turkey's social earthquake is much larger than the tectonic one," he said.
"There is a tug of war between the government and the opposition, and it seems that the winner is going to be unknown until the end of the elections."
-- Nadeen Ebrahim and Isil Sariyuce contributed to this reporting.