Turkish Imports in  2023 : Impacts of Earthquake and Expected Changes in Energy and Gold Prices

In 2022, Türkiye recorded a remarkable increase in its trade deficit, which amounted to $110 billion, equivalent to 12% of its GDP. This is the highest figure the country has ever recorded for a trade deficit. Although exports have increased more than the average of the last ten years, imports have increased significantly. However, Türkiye’s imports are projected to show a declining trend in 2023 due to expected  lower growth rates, energy and gold prices.

The estimated GDP growth rate for 2023 is 3.5%[1]  below the 2022 level (5.6%). The recent earthquake on February 6 had a severe impact on the country and caused a disruption of activities, especially in the most affected provinces such as Hatay, Adıyaman, Kahramanmaraş, Gaziantep and Malatya. The earthquake has claimed 45,089 lives in Türkiye as of March 1, and about 2 million people have moved to other provinces. [2] Although the share of imports in the 11 most affected provinces is not significant, accounting for only 6.6% of the country’s total imports (Table 1), the expected increase in infrastructure and construction activity could lead to an increase in imports of construction products. Therefore, the impact of the earthquake on import demand is mixed.

Türkiye relies heavily on imports to meet about 80% of its energy needs, making energy demand an important factor in determining the country’s import dynamics. In addition, Türkiye relies on the purchase of key inputs such as chemicals and base metals for its manufacturing production. Overall, imports of intermediate goods, including energy, account for nearly 80% of the country’s imports. In 2022, Türkiye faced a significant burden of higher energy prices, mainly due to the Russian invasion of Ukraine, which put pressure on oil prices, especially in the first half of the year. As a result, oil prices rose to $112 per barrel in May 2022, the highest level since 2011, and these rising energy costs were reflected in Türkiye’s imports.

The price of crude oil and refined petroleum products is expected to decline in 2023 as a result of measures taken by the Group of Seven (G7) countries. On December 3, 2022, the G7 members set a price cap of $60 per barrel for Russian crude oil (from December 5) and refined products (from February 5). [3] This price cap is enforced by the United States, the European Union, the United Kingdom, Japan, and Canada, and also applies to third parties through transportation and insurance restrictions. European companies may only transport the oil to other countries, and insurance companies may only provide coverage if the price is at or below the set level.

In response to the price cap, Russian Deputy Prime Minister Alexander Novak indicated that Russia will cut its oil production by 500kb/d rather than sell to countries that implement the price cap. Restricting oil production could lead to an increase in prices. However, non- OPEC producers are expected to increase production, leading to a 1.2 mb/d increase in global oil supply, with the United States, Brazil, Norway, Canada and Guyana contributing to the increase. OPEC Members Saudi Arabia and the United Arab Emirates are expected to produce near their all-time high, according to the International Energy Agency (IEA) report.[4] As a result, Urals crude prices fell to $52 per barrel[5] in January, even below the ceiling. IEA oil market reports indicate that if this trend continues, lower oil prices are expected in 2023. It appears that this trend will lower the cost of oil imports to Türkiye.

In 2022, Türkiye’s imports of precious metals, especially gold, increased significantly mainly due to rising demand for gold as a result of the negative real interest rates on Turkish lira savings in the country. Since gold has become a popular savings instrument, gold imports have steadily increased, especially since 2016. Figure 1 shows a rising trend in central bank gold reserves since then. The Federal Reserve’s interest rate (FED) also has an impact on the price of gold[6]. When the FED funds rate rises, the price of gold tends to be affected. In February 2023, the FED raised its key interest rate to between 4.5 and 4.75 percent in an effort to bring inflation down to its target level of 2 percent.[7] It is expected that there will be further increases in the FED funds rate during 2023, which will likely slow the rise in gold prices. In addition to expectations of a moderate increase in the gold prices, the government’s February decision to temporarily ban gold imports (against commodities)[8] is likely to have a significant impact on lower gold imports in 2023. Hence these factors are expected to curb rising cost of gold imports.

Overall, both international and domestic factors are expected to reduce pressure on imports in Türkiye in 2023. The slowdown in economic activity and lower in energy and gold price will be important drivers of the country’s import dynamics. In addition, the expected elections in May could lead to an adjustment in the government’s economic policy, which could have further restrictive effects on import developments in Türkiye.

Gülsüm Akbulut

Director of Global and Turkish Economic Studies

Foreign Policy Institute

6 March 2023

[1] https://www.sbb.gov.tr/wp-content/uploads/2021/10/Medium_Term_Programme_2022-2024.pdf

[2] https://www.afad.gov.tr/kahramanmarasta-meydana-gelen-depremler-hk-36

[3] https://ec.europa.eu/commission/presscorner/detail/pl/ip_22_7468

[4] https://www.iea.org/reports/oil-market-report-february-2023

[5] https://www.statista.com/statistics/1112243/urals-crude-oil-price/

[6] https://en.macromicro.me/collections/45/mm-gold-price/24057/us-fed-funds-rate-and-total-assets-vs-gold-price

[7] https://www.federalreserve.gov/monetarypolicy/files/monetary20230201a1.pdf

[8] https://www.ntv.com.tr/ntvpara/deprem-sonrasi-yeni-onlem-altin-ithalati-durduruldu,RxQto-Y3P06dJRfVH7_brA