Turkey’s trade deficit, based on the special trade system which excludes re-exports through free economic zones, jumped by 119% m/m to $6.42bn in August, trade ministry data showed on September 2.

Imports rose by only $989mn m/m to $18.2bn but exports slumped by $2.5bn m/m to $11.8bn.

The export shock was caused by demand contraction in the EU—Turkey’s largest export market, accounting for almost half of the country’s exports—while the decline in automotive exports was responsible for 36% of the overall export decline, Trade Minister Ruhsar Pekcan said.

Interestingly, despite the collapse in demand for export, Turkey’s electricity consumption, a gauge of industrial activity, posted its first annual growth in August. Prior to that, from February, it was in contraction. August electricity consumption was also slightly higher month on month.

In September, the domestic market will feel the effects of the ongoing currency shock. Turkey’s exports are sensitive to demand conditions on export markets but not to Turkish lira depreciation.

The August trade data also showed a huge jump in gold imports, which climbed to $4.16bn from $2.07bn in July and $2.38bn in June.

Since April, Turkey has stepped up its import compression efforts. As a response to the upcoming boom in the August trade deficit, President Recep Tayyip Erdogan on August 30 hiked taxes on vehicles with larger-size engine capacities. In Turkey, most such vehicles are imports.

However, vehicle imports were not among the top five import items provided in the initial August data by the trade ministry. They made up the fourth largest item in July at $1.41bn.

Vehicle exports remained the largest export item despite a decline to $1.2bn in August from $1.83bn in July.

Turkey’s economic policy since the beginning of the coronavirus (COVID-19) pandemic has made the country an outlier. The external balances of its peers have seen recoveries.

Over the same period, Turkey’s money supply growth outpaced that of its peers and it burnt through the highest amounts of international reserves to stabilise its currency.

Gold demand may continue in September as the USD/TRY rate is still breaking consecutive records and taxes have pushed Turks to physical gold and FX.