Turkey's trade deficit reveals an economy in deep trouble
I've been hammering away at Turkey's credit bubble problem for the past eight months: consumer lending is still growing at a nearly 30% annual rate, after dipping into the teens earlier this year (I am annualizing the 3-month growth rate). But the trade data just released for June show a slowing domestic economy.
With the economy clearly slowing, where are all the loans going? The answer is indicated by the extremely high interest rates charged by Turkish banks:
At 18% interest, consumers have to borrow to pay the interest on previous loans. In other words Turkish banks are capitalizing interest, and booking profits on loans that would go sour if they stopped lending additional money to borrowers to pay the interest. The much-vaunted strength of Turkey's banks (whose stock prices recovered smartly this year) appears to be an illusion.
The economic outlook isn't good.
From the Financial Times' Beyond Brics blog:
At first glance, newly released figures for Turkey's foreign trade suggest the country's economy is holding up well despite the travails of its neighbours in Europe.
But as ever the devil is in the detail and hidden away in the numbers are some more uncomfortable indications that darker days lie ahead for the Turkish economy.
Figures from TUIK, the statistics office, show a 30 per cent reduction in Turkey's trade deficit, from $10.3bn in June 2011 to $7.2bn in June this year. Other figures from TIM, the Turkish exporters' association, show exports for the 12 months to July reaching $142.6bn, a healthy 12.3 per cent up on the previous twelve months.
Taken together, the two sets of figures could suggest continued success for Turkey's exporters, while Turkish consumers have reined in their love of expensive imported goods.
But dig a little deeper…
To begin with, according to TIM's figures for July, Turkish exports for the month actually fell by 5.5 per cent over July 2011 while both TIM and TUIK show worrying falls in exports to Turkey's core European markets.
According to TUIK, Turkey's exports to the EU dropped from 48.2 per cent of the total in June 2011 to only 37.1 per cent this year. TIM's data suggest a drop from 47.7 per cent in July last year to 40.3 per cent.
According to TIM, the bulk of the fall came in two keys sectors: automotive, which saw exports in July plunge 22.3 per cent; and ready-to-wear textiles, where exports in July fell by 12 per cent.
While the two organisations collate their figures in different ways the outlook is clear: as Europe continues to sneeze, Turkey will catch a cold.
The picture is more worrying when the effect of the weakening euro is taken into account, an effect which economy minister Zafer Caglayan estimates cost the country $550m in July alone.
So far so bad. But according to Ozgur Altug, chief economist at Istanbul's BCG Partners, the real bad news is hidden not in weakening export figures but in the falling import figures – which helped contribute to fall in the trade deficit and to a reduction Turkey's current account deficit from $77bn a year ago to $67bn by the end of May this year.
Altug points out that Turkey's dependence on imported energy remains the chief culprit behind its current account deficit woes. "Despite falling oil prices, the 12 month rolling energy balance rose to $51.4bn by the end of June this year, compared with $47.8 at the end of 2011," he says. "The government has been successful in rebalancing the economy but the structural problems such as the growing need for imported energy are still there".
Altug warns that an improvement in the non-energy trade deficit is also illusory. He points to an 11 per cent drop in imports of intermediate goods over the first half of this year and a 16 per cent drop in consumer goods over the same period.
Both, he suggests, are a direct result of slower GDP growth, with the former suggesting a drop in imports of capital goods used to expand output, the latter indicting declining consumer confidence. The root problem, he suggests, is Turkey's failure to capitalise on years of rapid economic expansion to increase the contribution of exports to the overall economy.
"Despite the growth, the ratio of exports to GDP has remained almost level at 16-18 per cent for the past 11 years," he says, pointing out that the average for a BB-rated country is 32 per cent and for a BBB-rated country 42 per cent. By the end of this year Turkey may see a further deterioration in both its foreign trade balance and it scurrent account deficit.
All of which leaves the government of Recep Tayyip Erdogan with some tough decisions.
Reader comments on this item
|Keep hammering... [222 words]||Al||Aug 10, 2012 08:14|
Comment on this item
by Khaled Abu Toameh
Many Arabs and Muslims identify with the terrorists' anti-Western objectives ideology; they are afraid of being dubbed traitors and U.S. agents for joining non-Muslims in a war that would result in the death of many Muslims, and they are afraid their people would rise up against them.
Many Arab and Muslim leaders view the Islamic State as a by-product of failed U.S. policies, especially the current U.S. Administration's weak-kneed support for Iraq's Nuri al-Maliki. Some of these leaders, such as Egypt's Abdel Fattah al-Sisi, consider the U.S. to be a major ally of the Muslim Brotherhood. Sisi and his regime will never forgive Obama for his support for the Muslim Brotherhood.
Also, they do not seem to have much confidence in the Obama Administration, which is perceived as weak and incompetent when it comes to combating Islamists.
by Peter Martino
Scottish independence would be a disaster for NATO, putting the UK nuclear deterrent in jeopardy. It would also put into question national borders all over Europe, including Catalonia, Belgium, France's Brittany and Corsica, Italy's South Tyrol -- and Ukraine.
Russian Foreign Minister Sergei Lavrov warned in 2008 that Kosovo's independence "would be the beginning of the end for Europe."
Crimea's recent secession from Ukraine was justified with a reference to "the Kosovo precedent," which Putin pointed out, "our Western partners created with their own hands."
by Soeren Kern
Portugal, like Spain, also figures prominently in a map produced by the jihadist group Islamic State [IS] that outlines a five-year plan for expanding its Islamic Caliphate into Europe.
"Holy War is the only solution for humanity." — Abdu, Portuguese jihadist.
"Every time these jihadists groups mention the recovery of al-Andalus, they are also referring to Portugal. Jihadists do not believe in national divisions, but in the existence of a single Muslim community that embraces the entire Iberian Peninsula." — Miguel Torres Soriano, Spanish terrorism expert.
by Alan M. Dershowitz
President George W. Bush's announcement in 2001 to support the creation of a Palestinian state offered a unique opportunity to Palestinians to end the violence and begin building a new future. Hamas's response came a few weeks later, when it fired the first Qassam rocket into the Israeli town of Sderot, population approximately 20,000.
It was only after Hamas's coup in June 2007, and the heavy rocket attacks that followed, that Israel imposed more extensive sanctions on Gaza. Palestinian rocket attacks against Israeli civilians were not a response to Gaza's increasing isolation, but the cause.
The sanctions imposed on Gaza -- not only by Israel, but the world -- were the direct result of Hamas's refusal to meet the international community's basic, reasonable demands: stop terror, recognize Israel, and respect previous agreements. Hamas and its fellow terrorist organizations deny the right to live in peace.
The Goldstone Report not only falsified the past; it had a negative influence by encouraging Hamas to repeat its own double war crimes: firing rockets at Israeli civilians from behind Palestinian human shields -- and killing and kidnapping Israeli civilians and soldiers through its terrorist tunnels.
by Burak Bekdil
Last June, Turkey's own Frankenstein, who went by the name of ISIS, attacked the Turkish consulate compound in Mosul, and took 49 Turks, including the consul general, hostage.
The hostages are still in captivity. So is Turkey.
For each [Islamic] sect, the other is "not even Muslim."