Is Turkey’s export-driven growth sustainable?
Turkey’s industry remains heavily reliant on imported materials, meaning the country’s current account deficit problem persists despite a record increase in exports.
A big uptick in exports was a major driver of the Turkish economy’s 21.7% growth rate in the second quarter, but how much Turkey could sustain the trend is open to question as its producers remain heavily reliant on imported inputs and appear to have benefited from an unlikely silver lining of the COVID-19 pandemic.
The massive growth rate, announced earlier this month, owed much to the strong base effect from the second quarter of 2020 when the economy shrank by more than 10%, but there was clearly a growth momentum as well, marked by an increase in exports. While the revival of domestic demand contributed nearly 14 percentage points to the expansion, exports contributed almost 11 points. New investments stood out as another driver, fueled by the depletion of stocks during the pandemic. Yet the revival of the industry produced also some headwinds, namely an increased need for imported materials. Hence, imports rose as well and the contribution of net exports to growth was about 7 percentage points.
The positive impact of exports on growth and the balance of payments has continued in the third quarter, early indicators show.
According to Trade Ministry data, exports rose 37% to more than $140 billion in the first eight months of the year, while imports increased 26% to about $170 billion, meaning a foreign trade deficit of nearly $30 billion. On a year-on-year basis, exports were worth $208.4 billion and imports $255.2 billion, making for a deficit of nearly $47 billion. The figures represent a record level in exports and the highest level in imports since 2013.
