A contraction in Turkey’s foreign trade shortfall has been recorded for the first time since June last year. It shrank by 9% y/y to $5.51bn in June this year, according to preliminary data from the customs ministry released on July 2.

Exports contracted by 1.21% y/y to $13bn while imports fell at a sharper 3.62% y/y to $18.5bn.

“Finally seeing the start of 're-balancing'. Note the annual drop in imports. Over the next few months tourism flows should begin to underpin the balance of payments,” Timothy Ash, a strategist at Bluebay Asset Management, said in comments on the figures.

“Turkey will also be hoping that Trump gets the Saudis to hike oil production by 2 million barrels per day, as Turkey is a huge energy importer which weighs on the balance of payments,” Ash also said.

“Is Teflon Tayyip back?” Ash also remarked, referring to Turkish President Recep Tayyip Erdogan who surprisingly won the June 24 snap polls in the first round and may currently be finding the way to the desired soft landing for the overheating Turkish economy.

The initial sign of re-balancing came in May when growth in the year on year foreign trade gap figure fell sharply to 6% thanks to the fast depreciation experienced by the Turkish lira during the month. The trade deficit widened alarmingly across the first four months of 2018.

Analysts digesting the latest trade figures will also note that the manufacturing PMI index for Turkey pointed to a third straight month of contraction, running from April to June.

The latest trade data also showed that imports of consumer goods fell by 14% y/y to $2.17bn in June.

On the back of the June data, the foreign trade deficit widened 32% y/y to $41bn for H1. Exports increased by 6% y/y to $82bn and imports were up 14% y/y to $123bn.

Anxieties over Turkey's overheating economy in recent months strengthened over the sucking in of imports caused by the credit-fuelled economy. Turkey has one of the worst current account deficits in the world. Together, the June data on foreign trade and the PMI figures are likely straws in the wind indicating a slowdown in GDP growth, starting from Q2, is ahead.

Turkey's economic health is dangerously reliant on hot inflows of foreign external financing to enable growth. The political and economic outlook in the country is not secure enough to attract sufficient longer-term stable foreign investment capital.

Rising international concerns over a global trade war, meanwhile, are domestically generating anxieties of a major showdown that would negatively affect Turkey’s foreign trade performance.

Turkey’s current account deficit rose by 80% y/y to $21.8bn in January-April, the central bank announced on June 11.

The foreign trade deficit rose by 37% y/y to $77bn in 2017. Exports were up 10% y/y to $157bn but imports rose at the faster pace of 18% y/y to reach $234bn.

The government is forecasting a foreign trade deficit of $68bn for 2018 with exports reaching $169bn and imports amounting to $237bn.