Commentary:  Soaring trade  deficits, shrinking PMI and sickly consumer confidence

Recent data reveals a weakening of economic activity in Turkey, which weakness is likely to deepen in the spring months.  As February trade deficit grew to $7.88 billion from $3.35 billion in February, Friday’s manufacturing PMI fell below 50 after 10 months of  expansion.  Private broadcaster BloombergHT’s revered Consumer Confidence Index registered a meagre  2.13% rise Mom, but the level is only 46.29, miles away from the “consumer optimism” lower boundary of 100.  Never ending energy prices hikes, eroding discretionary disposable incomes, and relentless pressure on the TL exchange rate augur ill for spring months.


Three Scourges of Turkish Economy: Unemployment, Inflation, and External Deficit



Consumer Confidence:  Rising inflation expectations drive intensions to purchase


According to the survey agency compiling BloombergHT’s sentiment data: “In March, there is deterioration both at current perceptions and future expectations of consumers for the whole economy whereas tendency to consume and personal expectations slightly rose. Russia–Ukraine War and its reflections on financial markets seems to be the main driver of falling sentiment for the whole economy.

Bloomberg HT Consumer Expectations Index rose by 4.29 percent compared to end of February as of the index number 60.24. Bloomberg HT Consumption Tendency Index which tries to measure consumers’ stance on whether the current period is the right time to buy durable goods, autos and real estate is experiencing a rise of 7.56 percent to the value of 29.69. Rising inflation expectations might have contributed to the slight improvement of tendency to consume”.



Ukraine Crisis Could Cost Turkey $30 Billion


Yatirim Finansman Invest:  Manufacturing PMI decreased to 49.4 in March vs 50.4


In a brief note, economists at Yatirim Finansman summarized March PMI data as follows:


  • Slowdown trend reached to 4th month in production and 6th month new orders. Export orders lost momentum.
  • Employment recorded the lowest level of gains in last 22 months.
  • Losses in the Lira currency and the war leaded to increase on input (especially on oil) prices. Reflection to the prices of increasing costs leaded to one of the highest increase on final good prices since the beginning of the survey (2005).
  • Delivery periods of the suppliers continue to extend.
  • Purchasing activities of the firms recorded the sharpest drop since May 2020.
  • Backlogs recorded the highest decrease in last 1 year.


“Manufacturing PMI indicate that the YoY IP could lose momentum and decrease to negative levels”, was the conclusion of the note.


Yet, all is not lost.   “Another PMI index called PUMAX had better results:  Despite the slowdown in manufacturing  PMI, Services PUMAX hinted at a robust  Outlook in 1Q22”, however, in PUIMAX, too, manufacturing PMI registered a MoM 1.8 point decline.


Trade deficits cause for rising concern


Turkey’s foreign trade gap surged in February from a year earlier after imports jumped.


The deficit grew to $7.88 billion from $3.35 billion in February last year, the Turkish Statistical Institute said on Thursday. Imports jumped by 45 percent annually to $27.9 billion, outpacing a 25.4 percent increase in exports to $20 billion.


Turkey’s trade gap with the rest of the world is expanding at a faster pace after the price of energy, commodities and raw materials soared due to global supply issues, and cheap lending by state-run banks increased demand for imports. The war in neighbouring Ukraine, which began at the end of February, has led to further hikes in import prices. Turkey imports nearly all the oil and natural gas that it consumes.


The trade deficit for the first two months of the year widened to $18.2 billion, almost tripling from $6.4 billion in the same period of 2021. The gap in January alone was $10.3 billion.


The shortfall in exports versus imports makes up the lion’s share of Turkey’s expanding current account deficit, which it must finance through foreign investment and other revenue from abroad such as tourism. Failure to finance the gap threatens to weaken the lira, which lost 44 percent of its value against the dollar in 2021. The currency has dropped by a further 10 percent this year.


The government targets a gap of $18.6 billion for the whole of this year in its economic programme, while private economist jacked up theirs to $35-45 billion range.  According to reliable estimates, Central Bank’s encashable assets are only $40 bn, while last week’s data revealed an increase in FX deposits, suggesting despite the FX protected deposit scheme, locals are accumulating FX.  The combination of widening current account deficits, low consumer sentiment and CPI inflation expected to reach 60% YoY in March reading could erode disposable income of consumers, triggering a recession, or another harrowing currency crash, like the one experienced in December 2021.


By Atilla Yesilada, PATurkey editor, political analyst


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.