Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Wednesday, October 3, 2007

Uncoupling and Turkey's August Trade Deficit

What follows is a brief research note on the latest monthly trade data from Turkey. (Anyone interested in a more in-depth analysis of recent developments in the Turkish economy can try my post The Anatolian Tiger, for Global Economy Matters, 9 September 2007).

The coupling-uncoupling issue is a complex one. In many ways there are clear signs that some parts of the global economy are more coupled than ever before. To take one case in point, Japan. As Richard Katz noted, Japan can hardly be said to have uncoupled from the United States economy given that, since 2001, there has been a 77 per cent correlation between Japanese GDP growth and the level of exports in the previous quarter. Indeed, during the years between 2000-2007, the correlation between GDP growth in the US and Japan was 74 per cent. On the other hand, and changing continents adroitly, Serhan Cevik informs us that that the equivalent correlation for Turkey was 71 per cent, and this close relationship exists in the data despite the fact that only 5% of Turkey's exports actually end up in the US.

The key to understanding this mysterious Turkey-US "coupling" undoubtedly passes through the Eurozone, and in particular through Germany, which is, in its turn, very dependent on exports for achieving economic growth. So it is with this focus in mind that I am going to take a quick look at the latest trade data from Turkey.

According to provisional data from the Turkish Statistical Office Turkish exports grew in August 2007 by 27.7% (year on year) and reached a value of 8,698 million Dollars. At the same time imports grew by 22.2% reaching 15,006 million Dollars. The foreign trade deficit for August thus increased by 15.4% over August 2006, rising from 5,465 million Dollars to 6,308 million Dollars.

The weight of the EU in Turkish Exports remains important. Over the January-August 2007 period, and when compared with the same period of the previous year, exports to the EU were 37,960 Million Dollars - or up by 25.9%. The proportion of the EU countries in total exports was 56.6%.

In August 2007, the main export partner was Germany with 1,044 million Dollars, an increase of 41.9% over August 2006. So Turkey is evr more dependent in this business cycle on Germany for export growth while Germany is dependent on both the US and Eastern Europe for both export growth and GDP growth. (The principal driver of Turkish growth is not at this point exports but rather domestic demand and investment).

Germany was followed in importance by the UK (699 Million Dollars), Russia (423 Million Dollars), France (417 Million Dollars), Italy (414 Million Dollars) and the USA (343 Million Dollars).

For August 2007, the top country for Turkey’s imports was Russia (2,059 Million Dollars) reflecting Turkey's dependence on imported energy, while imports from other countries range from Germany (1,857 Million Dollars), to China (1,289 Million Dollars), to Italy (879 Million Dollars) and the USA (812 Million Dollars).

For the period January-August 2007, road vehicles and components had the highest value share in exports at 9,940 million Dollars, followed by iron and steel (5,762 million Dollars), machinery, mechanical appliances, boilers, equipment and parts 5,619 million Dollars) and articles of apparel and clothing accessories (5,314 million Dollars).

Over the same period, the top categories for imports were mineral fuels and mineral oils (20.401 million Dollars) followed by machinery, mechanical appliances, boilers, equipments and parts (14,145 million Dollars) and ıron and steel (10,518 million Dollars).

What we can see from all of this is that, at least in foreign trade terms, Turkey is very dependent on the EU, and in particular on Germany and the EU 10. Since Germany is itself very dependent for growth on exports to the US and the EU 10, we can expect any slowdown in that mechanism to find a reflection in the level of economic activity in Turkey.