Turkish exports remain strong but Ukraine conflict clouds outlook

Turkey’s exports registered another all-time monthly high in February, but its trade deficit widened mainly due to the surging energy bill, while Russia’s invasion of Ukraine is adding to the woes, clouding the outlook.

Exports were up 25.4% year-over-year to $20 billion (TL 281.39 billion) last month, Trade Minister Mehmet Muş told a meeting in the capital Ankara to announce the preliminary trade figures.

Imports surged 45.6% year-over-year to $28.1 billion, the data showed, mainly due to swelling energy imports.

Energy-related purchases accounted for around $9 billion of the imports, according to the data.

The trade deficit thus reached $8.1 billion, leaping 142% year-over-year, Muş said. The shortfall widened 186% year-over-year in the first two months of the year, the data showed.

Muş said severe winter conditions coupled with the increase in energy prices caused the spike in imports.

Russia’s invasion of Ukraine has pushed oil prices to their highest since 2014 at more than $110 a barrel, raising risks for energy importer Turkey.

Prices of grains, which Turkey imports mainly from Ukraine and Russia, have also surged.

Turkey made a buoyant start to 2022 as its exports hit an-all time monthly high in January, surging by 17.6% year-over-year to $17.6 billion.

Exports reached a record $225.4 billion in 2021, and the government has revised its target to $250 billion and $300 billion set for 2022 and 2023, respectively.

Russia’s invasion of Ukraine carries the potential to harm Turkey’s economy, given its deep energy, defense and trade relations, while both markets are its crucial tourist sources.

“Russia and Ukraine are both among Turkey’s important trade partners,” said Muş, but stressed that the conflict struck a serious blow to the regional economic activity and political stability.

Turkey’s trade with both Russia and Ukraine reached a record high in 2021. The volume with Russia reached $34.7 billion, while the turnover with Ukraine jumped to $7.4 billion.

Studies are underway to help ease potential adverse impacts of the conflict, Muş said.

“We are conducting technical studies to prevent the spread of the crisis to different regions and sectors, focusing on alternative modes of transportation and routes.”

The conflict could also slash Turkey’s tourism revenues, as Ankara tries to implement a new economic program that prioritizes production and exports with the aim of achieving a current account surplus.

Turkey’s lira had traded broadly stable since the beginning of this year but topped 14 against the dollar last week due to rising tensions between Moscow and Kyiv.

It weakened 1.5% on Wednesday, before paring its losses.

“The main impact of the war on the Turkish economy will be through lower tourism revenues and higher oil prices,” JPMorgan said in a research note on the fallout from the war.

Goldman Sachs said in a recent note that Turkey’s reliance on tourism revenues from fighting parties as well as rising commodity prices is likely to lead to higher inflation, a wider current account deficit, and could affect economic growth.

It revised a current account deficit forecast for 2022 to 2.5% of gross domestic product (GDP) from 1.5% previously, adding that the conflict can renew pressure on the lira.

QNB Finansbank revised its 2022 current account deficit forecast up to $25 billion from a previous $10 billion.

The government expects the current account to reverse course and record a surplus.

JPMorgan also doubled its current account deficit forecast to 2.2% for this year from 1.1% of GDP.

Turkey imported most from Russia, China and Germany last month. The top three destinations for Turkish exports were Germany, the United States and the United Kingdom, the data showed.

The foreign trade volume soared 36.4% to $48.1 billion last month, Muş said.

The export-import covering ratio excluding energy was 95.1% in February, he added.

The number of exporter companies increased by more than 5,000 year-over-year in February, Muş noted.


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