Turkey Financial News

Posted by meb at February 2nd, 2007

Experts say Turkey’s record foreign trade deficit is setting off alarm bells for the current account deficit, an indicator of economic crisis if its ratio over gross domestic product (GDP) is larger than sustainable levels.
Turkey’s foreign trade deficit hit $52 billion in 2006, 19.8 percent higher than the previous year, according to recent data released by the Turkish Statistics Institute (TÜİK). Foreign trade is the main item in the balance of payments.

The balance of foreign trade is the main item in the balance of payments, a main indicator of a sustainable economy.
Professor Sudi Apak from Trakya University said that Turkey’s foreign trade deficit has become a chronic illness for the economy. “The other items in balance of payments can compensate a maximum $10 billion,” said Apak and added that the remaining $42 billion was a danger signal. He did emphasize that Turkey’s foreign trade growth rate was lower than the world average but everyone had to appreciate the success of exporters in the face of a lot of negative circumstances.
Economists defend that the sustainable level of the current account deficit over the GDP is around 5 percent. If larger, the economy becomes more fragile and a crisis becomes more likely. According to preliminary data, Turkey’s expected current account deficit ratio over GDP will be more than 10 percent, that is to say quite larger than what is assumed as normal. On the other hand, some economists argue that as long as the country applies an effective free exchange rate policy and has sufficient reserves, the deficit will do less harm.
Professor Ramazan Aktaş of TOBB-Economy and Technology University pointed out that outsourcing export production was a threat to the current account balance and also to small-size enterprises. “If exporters continue to import intermediate goods for their products, the foreign trade deficit will increase rather than decrease,” said Aktaş. He said Turkey has to focus on ways to increase wealth rather than increase exports.
TÜİK’s foreign trade data for December 2006 displayed that Turkey’s exports increased by 16 percent in 2006 to $85.1 billion and imports to $137 billion, a 17.3 percent jump. The export/import ratio shrank to 62.1 percent, down from 62.9 percent last year. Exports in December increased by 16.6 percent, up to $8.4 billion. However, imports decreased by 1.3 percent compared to the previous December.
Total amount of imports was $11.5 billion. The foreign trade deficit in December 2005 was $4.4 billion, shrinking by 30.5 percent to $3.1 billion. The export/import ratio was 73.3 percent, 11.3 percent higher than December 2005. Total exports were $73.5 billion and imports were $116.8 billion in 2005. The foreign trade deficit during the same period was $43.3 billion and the exports coverage imports rate was 62.9 percent.
Imports of intermediate goods increased by 20 percent, capital goods imports increased by 8.7 percent, consumer goods increased by 14.2 percent. Intermediate goods imports share of total imports was 71.7 percent at $98.2 billion, capital goods imports at $22.1 billion, and consumer goods imports at $16 billion. Manufacturing sector exports were worth $79.9 billion, agricultural and lumber products exports $3.5 billion and mining exports $1.1 billion. The majority of exports went to EU countries. Exports to the EU increased by 14.4 percent, up to a 51.6 percent share of total exports. Exports to the EU totaled $43.9 billion.

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4. Foreign trade deficit with EU decreases rapidly
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