Turkish trade gap narrows as imports drop

Reuters

• Turkish trade gap down 8.3%
• ‘Significant step’ in rebalancing
• Aiming to tackle inflation

A sharp drop in imports, combined with a solid rise in outbound shipments, led Turkey’s trade deficit to narrow in July

This aligned with government efforts to curb domestic demand while looking to exports to sustain growth.

Turkey’s exports jumped 13.8 percent in July to a total value of $22.5 billion, according to data issued by state statistics agency Turkstat on August 28. Imports eased 7.8 percent to $29.8 billion, giving a $7.3 billion deficit for the month.

The seven-month trade figures also showed a steady improvement, with the trade deficit down 8.3 percent to just under $50 billion. 

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Treasury and finance minister Mehmet Şimşek said the result was a “significant step in managing one of the macroeconomic imbalances”.

Turkey’s government is trying to rein in inflation, which peaked at 75 percent in May before receding to 62 percent in July, by draining cheap credit out of the economy. The central bank lifted its key lending rate to 50 percent in March, a rate the bank’s monetary policy committee indicated it would maintain into the autumn in its latest report on August 27. 

For economist Mustafa Sönmez, the fall in imports shows the government’s policy to cool the economy is working.

“This is the natural outcome of a disinflation programme,” he told AGBI. “Imports slow down simply because the economy slows down.

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“When you raise interest rates to tackle high inflation the economy slows and demand falls, thus production falls. As production drops, import demand falls and the trade deficit decreases.”

The cooling of imports suggest domestic demand for overseas goods and services is falling in line with government expectations. But the fall is not as steep if gold and fuel imports are stripped out of the equation. The value of inbound shipments eased just 4.2 percent in July. 

Of some concern to the government will be the fall in imports of capital and intermediate goods. These are essential for industrial growth, production and exports. But their fall is far higher than that for consumer goods. 

While there was a 3.2 percent dip in consumption goods imports in July, the first seven months of the year recorded a 15.7 percent increase. That suggests Turks have yet to be weaned off their taste for overseas products. 

“The demand for imports of durable and non-durable goods continues to a degree. The upper class has not yet tasted the bitter medicine, with demand from that segment of society continuing,” said Sönmez.