Türkiye's foreign trade balance improved in the second quarter despite a sharp rise in energy costs, as resilient exports and weaker non-energy imports helped offset the impact of higher global fuel prices, the country's central bank said on Monday.
In an analysis, the Central Bank of the Republic of Türkiye (CBRT) said the U.S.-Israeli war with Iran, which began in late February, had been expected to worsen the country's external trade outlook through higher energy prices and disruptions to global supply chains.
"However, second quarter data painted a different picture. Despite a marked increase in energy imports, exports remained strong and the foreign trade balance improved," CBRT analysts said.
The conflict's most immediate impact was felt in energy markets, where second quarter average Brent crude prices rose 55.2% from a year earlier, while natural gas prices increased 28.2%.
As a result, Türkiye's calendar-adjusted energy imports climbed 32.4% year-over-year, reflecting not only higher prices but also the structure of energy imports, supply contracts, spot purchases and delivery lags, the bank said.
Although the recent easing in global energy prices points to slower growth in energy imports, upside risks remain in the near term because changes in prices feed through to import costs with a delay, it added.
Exports offset higher energy bill
The analysis said energy prices alone do not determine the external balance, as the current account is also shaped by export performance, services revenues and domestic demand.
It noted that the current episode differed from 2022, when surging energy costs following Russia's invasion of Ukraine placed much heavier pressure on Türkiye's current account.
"This divergence was primarily driven by exports," it noted.
Although exports to Middle Eastern countries dropped sharply in March after the outbreak of the conflict, they recovered during the second quarter.
The central bank said the disruption to shipping through the Strait of Hormuz and higher freight and insurance costs encouraged some buyers to shift orders toward Türkiye as global supply chains adjusted.
Interviews with firms indicated that stronger demand came mainly from Europe and was driven by precautionary purchasing, with companies initially viewing the increase as temporary.
The analysis said precautionary demand boosted exports of chemicals and base metals, while supplier diversification supported apparel and textile shipments.
It also highlighted the growing contribution of the defense industry, whose share of Türkiye's total exports has increased by about 2.3 percentage points over the past four years to 4%.
Weak domestic demand curbed imports
The improvement in the trade balance was also supported by the composition of imports, the CBRT said.
While total imports increased in the second quarter due to higher energy purchases, imports excluding energy declined.
Imports of intermediate goods excluding gold and energy were broadly unchanged, while imports of investment and consumer goods fell amid weak domestic demand and improved export order expectations.
High-frequency indicators, including credit card spending, also pointed to softer consumer demand and lower imports of consumer goods, the bank said.
Purchasing Managers' Index (PMI) data likewise showed manufacturing output weakening during the quarter even as export demand expectations improved.
"In sum, the adverse impact of rising energy prices on the foreign trade balance in the second quarter was largely offset by the robust course of exports," the analysis said.
It added that subdued domestic demand, driven by tight monetary policy, had altered the composition of imports and further supported the improvement in the trade balance.
"Taken together with the recent normalization in energy prices, these developments suggest that the upside risks posed by the war to the current account deficit have diminished compared with a few months earlier," analysts said.