Foreign trade deficit continues to shrink

Foreign trade deficit continues to shrink

Turkey’s foreign trade deficit has continued to decrease since the start of the New Year. According to recently released data based on the month of May, the monthly foreign trade deficit has now become $7.1 billion. The data highlights how the foreign trade deficit has continued to shrink in the last couple of months, from $92.2 billion at the end of April to $89.4 billion at the end of May.

As of the end of May, the total foreign trade deficit of the first five months of the year has decreased by 24.9 percent to $31.6 billion, highlighting the continued decrease in the deficit over a five month period.  

The foreign trade deficit in the month of May decreased by 43.3 percent to $3.2 billion; the foreign trade deficit, excluding gold, dropped to $6.5 billion, 20.8 percent lower compared to last year. 

Accompanying these positive developments, exports in May increased by 3.6 percent while imports shrank at a high rate of 11.5 percent. A rise of 12.9 percent in textile and clothes exports in May and a 13.5 percent rise in motor vehicles exports are other areas that stood out.

When we look at imports, we see a decrease of 10.3 percent in intermediate goods, 5.5 percent in capital goods and 7.6 percent in consumer goods.

The decreases are mainly due to the increase in exports to European economies, mainly due to signs of a revival in the region, and the continuing decrease in domestic demand. In other words, whether or not the narrowing in the foreign trade deficits will continue completely depends on the course of these developments. Again, in the case of the domestic demand recovering, mainly due to the upcoming elections, there are serious risks foreseen such as hikes in imports and the cost of exports increasing due to a rise in oil prices.  

As a matter of fact, it would be beneficial to review the recent interest rate debate from this perspective. The prime minister’s demand for a substantial cut in interest rates from the Central Bank is to gain more votes for the upcoming elections, due to the revival of domestic demand. If these demands are met, then the recovery will also slow down.

Lesser falls in current account deficit

Bank analysts say that foreign trade figures for the month of May indicate normalization in Turkey’s external equilibriums, but when seasonally adjusted they are concerned that this normalization will continue to be the same in the coming months. The analysts who point to developments in domestic demand determining the foreign trade deficit argue that the speed of the shrinkage will begin to slow down.

On the other hand, it is not expected that these positive developments in the foreign trade deficit will be reflected exactly in the balance of payments, which will be revealed on July 11. The month of May is the month when foreign companies transfer capital and dividend payments to their main countries, the analysts pointed out, reminding that these payments have a curbing effect on the narrowing of the current accounts deficit.   

Nevertheless, a fall is expected compared to last month. The current accounts deficit at the end of April was $56.8 billion on a 12-month basis. This figure is expected to go down to $54 or $55 billion at the end of May, but even this figure corresponds to a high current accounts deficit of 6.5 percent of the national income.