Turkish imports surge, exports fall in bad news for lira

Turkey’s trade deficit more than doubled to $5.1 billion in November as imports jumped and exports fell.

Imports rose by an annual 16 percent to $21.2 billion last month, according to preliminary data published by the Trade Ministry on Wednesday. Exports fell by 1 percent to $16.1 billion. Turkey posted a trade deficit of $2.2 billion in November last year.

Foreign investors in Turkey are looking for signs of a narrowing of the trade deficit, which has contributed to a sharp increase in the current account deficit, after the central bank hiked interest rates to help defend the lira. The wider current account gap is pressuring the lira's value because Turkey must finance the shortfall through hard currency earnings such as tourism revenues, which have slumped this year due to the COVID-19 pandemic.

The lira fell by 0.2 percent to 7.83 per dollar after the data was released, giving up earlier gains.

Turkey had reported a trade deficit of $2.4 billion in October, the smallest shortfall this year. Imports grew by 8.5 percent to $19.7 billion. Exports rose by 5.6 percent to $17.3 billion.

Turks are buying more goods from abroad after the government encouraged banks to lend at below market interest rates, resulting in a borrowing boom. Some Turkish citizens have also bought up imported gold to protect their savings after the lira fell sharply against the dollar this year.

"Not only is Turkey suffering the loss of key tourism revenues but the merchandise trade deficit continues to worsen, despite the weaker lira," said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London. "Maybe it’s because of the weaker lira, or expectations of more weakness to come, and people are buying imports while they can as a store of value against inflation."

Imports of gold and other precious metals and stones jumped by an annual 59 percent to $2.66 billion in November, the Trade Ministry said. Consumer goods imports rose by 41 percent to $2.63 billion, while imports of capital goods increased by 33 percent to $3.13 billion.

Exports fell last month due to demand in Europe, which has been negatively affected by a second wave of COVID-19, Trade Minister Ruhsar Pekcan said, according to state-run Anadolu news agency. So-called calendar effects were also to blame for the limited decline in the value of exports, she said.

Turkey’s central bank has hiked its benchmark interest rate to 15 percent from 8.25 percent since September to help arrest the lira’s declines and to rein in inflation of 11.9 percent. Economists have said the higher interest rates will slow demand for loans and encourage Turks to switch their savings back into liras.

"It gives the central bank little choice to keep monetary policy tight to try and restrict domestic demand for imports, and give the lira a bit of hope," Ash said. "Guess they need to last out at least to Easter, when hopefully COVID vaccines save the 2021 tourism season."