Sunday, June 20, 2010
Given the euro's dire straits against the dollar, I've been getting a lot of questions on the impact of EURUSD on Turkey's trade balance:
You get a nice mirror image that seems to answer the question if you graph the country's trade balance and EURUSD:
As Turkey's exports are mainly in dollars and its imports in euros, the above picture does seem to make sense. But as I often say, correlation is not causation. For one thing, Turkey's euro-denominated exports and imports are more or less equal, as you can see in the graph below.
This means that, as my friends at Global Source/ Turkey Data Monitor summarized recently in their quarterly report, the valuation impact of euro weakness on Turkey's trade deficit is NIL (caps are mine). As they also note, this can be seen by looking at the relationship between EURUSD and export and import price indices:
However, this is not the whole story. Volume effects could be widening Turkey's trade deficit with the Euro Area, but I don't see this happening because, again quoting my friends at GS/TDM, as long as lira's real effective exchange rate does not appreciate much, trade diversification should contain the damage. Let's see how we are doing on that front:
I just watched New Zealand tie Italy, so as they would say, no problem mate!