September Trade Deficit: Core imports brake a record, as exports stagnate

Date:31Oct2017

Today’s release of September trade data by Turkstat was exactly in line with the preliminary Customs Ministry Data released in early October, with the 12-month rolling deficit rising sharply to $67.8 billion from $64.1 billion in August, mainly on the back of surging imports. But now that we have the full details from Turkstat, we can: 1) trace the core trade balance, i.e. total balance, less gold and energy (because these details are unavailable in customs ministry data), and 2) see the evolution of monthly seasonally-adjusted (SA) data, which is more indicative of trends, particularly nowadays (given the strong base effect in the year-on-year numbers).

So what do we see? As shown in the chart below, core imports appear to have broken a record, while core exports continue to stagnate — and the core trade deficit, as a result, rises to one of the highest levels on record.  (Core export, import and trade balance figures are calculated by subtracting (unadjusted) gold and energy trade figures from seasonally- and working day-adjusted totals, which are readily available from Turkstat.)

There is probably some noise in the numbers, and the import surge may not continue at this pace, going forward, but the message in the data is clear: when growth surges, so do imports — sooner or later. This time there is a bit of a lag in between,  probably because of, at least in part, the inventory cycle. Today’s data also shows why net export driven growth – as a secular trend (as foreseen in the latest MTP, for instance, for 2018-20) — is an almost impossibility in Turkey because during periods of high growth, imports typically outpace exports, even if the lira markedly depreciates in the background (as it has in recent years).  This is a structural feature of the Turkish economy in that, to contain external imbalances, we have to give up growth for a while, or in the Adjustment Economics 101 language, “expenditure reduction” is also needed; “expenditure switching” alone won’t do…