No one has enough data yet on the possible impact of European energy crisis on Turkish exports. While energy-intensive sectors have lost their competitive advantage due to soaring costs, some sectors continue their operations at fast pace, encouraged by the lower costs compared to Europe. This means that our exports will be negatively affected by the demand itself rather than factors such as costs and exchange rates. For this reason, it is necessary to be careful about the decline in demand for durable consumer goods or products offered to the retail market, such as furniture, textile, white goods, and electronic products, even automotive and sub-industry products.
Unemployment, high cost of living and a recession together in the Eurozone may cause a dramatic decrease in demand Turkish exports. Last year, four of Turkey’s top trade partners have all been European countries. In the first six months of this year, on the other hand, there are only three European countries in the top five. Turkey sends more than 30% of its exports to EU countries, including non-EU countries such as the UK, exports to the European Union consist of almost half of Turkey’s exports.
There are quite a few articles written on Turkey’s exports vis-a-vis the slowing European economy, which all emphasize that the economic troubles have already become visible. According to the latest data, the negative effects of the slowdown in the European market began to be felt as of July and August. For instance, industrial exports decreased in late summer and early autumn this year compared to the last year, in terms of quantity. Luckily, it did not decline in terms of value, but it slowed down, thanks to the price hikes. This goes to show that how important it is to monitor export performance not only on the basis of volume, but also on the basis of quantity.
Some sectors may have more advantage than others…
It is clear that this process will bring unprofitability and growth problems given the fact that most of Turkey’s export revenues are denominated in euros and most of the costs are denominated in US dollars. Accordingly, foreign currency earning activities are of vital importance considering Turkey’s poor foreign currency reserves. While the analyses show that 75 billion dollars of sales were made in the January-August period from the foreign currency reserves that Turkey has borrowed to prevent further rises in FX rates, we are looking at some frightening scenarios for the fact that Turkish export performance is rapidly losing momentum. Turkey’s foreign currency reserves has recently become more stable thanks to tourism revenues; however, we should expect more sales from reserves sales in autumn and winter.
Here’s some good news: there are still some sectors in Turkey that can benefit from this situation in Europe. According to Can Fuat Gürlesel, we may see an additional demand from Turkey for the supply of mineral products such as base metals, metal goods, chemicals, textile, paper and forest products, plastic and rubber, glass, ceramic, and cement.
However, these industries should nevertheless be cautious and not make any moves to increase capacity without identifying the exact demand. In fact, if possible, they should supply the heavy demands correctly and not pay more than 25-30% of their profit to any customer. The same applies to their own suppliers. Otherwise, all their operations will be bound to a handful of supplying companies. A moment of relief that comes from suddenly increasing sales should not prevent you from acting carefully.
Turkish people know how to survive in hard times, which, sadly, they learned from their failures to manage the good times effectively, therefore, always leading to more hard times.