Economy
Türkiye’s trade deficit narrows to 9-month low in May
Türkiye’s trade gap narrowed 15.7% on a yearly basis to $5.6 billion in May, mainly due to the calendar effect and fewer working days during the month, marking a nine-month low, Trade Minister Ömer Bolat said on Thursday.
The deficit decreased as both exports and imports fell in the month, with imports showing a starker decline of nearly 11%.
Announcing the preliminary foreign trade in Ankara, the minister said that exports dropped by 9.3% to $22.5 billion in May, while imports fell by 10.7% to $28.1 billion in the same period.
Last month had a long 9-day holiday that coincided with Eid al-Adha or Qurban Bayram, the second of two major holidays observed among Muslims, which reflected on the figures.
Starting his speech, Bolat noted that the world economy is going through a difficult period, with ongoing geopolitical challenges and disruptions in logistics chains, and he said that despite an environment where global economic growth forecasts are being revised downwards, Türkiye continues to show resilient performance in growth, employment, and exports.
He recalled the national income grew by 2.5% in the first quarter of the year, marking 23 consecutive quarters of growth, referring to the recently shared gross domestic product (GDP) data.
“In May 2025, we broke the monthly export record in the history of the republic with $24.8 billion. Official holidays in May naturally had a negative impact on exports; however, by also reducing imports and our foreign trade deficit, there was an improvement in the export-to-import coverage ratio,” the minister said.
Export-to-import coverage ratio surged by 1.2 points to 80.1% last month, reaching the highest level in the past 20 months.
“In May, exports reached $22.5 billion, a decrease of 9.3%. Our daily average exports reached $1.3 billion,” he added.
Bolat highlighted that there are no national or religious holidays in June, and noted that export figures are expected to increase this month compared to last year, and that higher numbers could be observed on an annualized basis.
He also stated that on May 22, a new all-time high daily export figure of $2.4 billion was reached, and added: “Our exports to Gulf countries dropped by 30% monthly in March due to shockwaves from conflicts. However, we recovered in April and saw an increase. A similar trend continues in May. Exports are actually increasing, but the calendar can sometimes have negative effects.”
Trade Ministry, in a written statement, separately said that despite the calendar effect, this May marked the third-best May ever, considering export figures. It also noted that the month had six fewer working days compared to last year.
Bolat said Türkiye has also made significant progress in exporting medium-high and high-tech products, reporting that the export share of such products reached 44% in the January-May period.
He stated that imports fell by 10.7% to $28.1 billion in May, with exports decreasing by $2.3 billion while imports dropped by $3.4 billion, thus improving the foreign trade deficit.
Bolat also noted that imports fell by 0.8% in the January-May period, explaining that the reduction in gold imports also played a role in this decline.
“There has also been some deceleration in automotive imports in the first five months. These acted as a brake on the increase in imports. On the other hand, our petroleum imports increased by nearly $2.5 billion,” he said.
Bolat stressed that a much clearer trade picture will emerge at the end of June as most of the calendar effects will disappear.
“On an annualized basis, we have $273.5 billion in exports, a modest increase of $250 million. However, we will make the real assessment when we complete the first half of the year,” he suggested.
He also informed that the annualized imports increased by 4.2% to $367.2 billion.
He also suggested that the trade deficit is close to the levels seen at the end of December last year, pointing out that at the end of the first five months, the annualized foreign trade gap has increased by only $1.45 billion.
Hitachi Energy, a subsidiary of the Hitachi conglomerate, inaugurated on Thursday its new Power Transformers Factory and Service Center in Kocaeli’s Dilovası, an industrial hub in northwestern Türkiye.
“The new facility represents a strategic investment to strengthen manufacturing capacity, service capabilities, and support the accelerating energy transition across Türkiye and key export markets,” the company said.
Launched with an opening ceremony, the facility stands out as one of the significant investments in the company’s nearly 60-year history of transformer production in Türkiye.
The facility, brought to life within the scope of a strategic investment of $70 million (TL 2.8 billion) announced in 2025, aims to strengthen Türkiye’s position as a regional hub for production, export, and service between Europe, Asia, the Middle East, and Africa.
With this new investment, Hitachi Energy’s production capacity in Türkiye is set to increase by 70%, thereby supporting the country’s growing need for a reliable, flexible, and sustainable energy infrastructure.
The Dilovası facility is also expected to increase workforce capacity by around 30%, creating new opportunities for skilled talent while contributing to local development.
The facility is designed to produce small, medium, and large-scale power transformers for public utilities, renewable energy projects, industrial institutions, transportation infrastructures, and data centers. The site also strengthens export capacity, serving customers in more than 50 countries worldwide.
Tamura Masami, Japan’s Ambassador to Ankara, stated that the investment is an important step for Türkiye’s energy transformation and regional energy infrastructure.
“Türkiye is undergoing a significant transformation by increasing its renewable energy capacity while simultaneously strengthening its energy transmission infrastructure. We believe that this investment in Dilovası is of great value not only in terms of bringing advanced technologies to Türkiye but also in terms of sharing engineering know-how, supporting local employment, and strengthening Türkiye’s position as a regional production hub,” he said.
“We are pleased to see that the long-standing strong cooperation between Japan and Türkiye is also evolving into concrete projects in the energy field.”
Maxine Ghavi, Hitachi Energy’s head of Europe, stated that the investment strengthens Europe’s position as a global leader in transformer technology and production.
“Facilities like Dilovası, equipped with advanced capabilities, form a crucial part of Europe’s industrial infrastructure that enables grid expansion, electrification, and system resilience across the continent and beyond,” Ghavi said.
Yasemin Öztekin, Hitachi Energy Türkiye General Manager, emphasized the importance of the investment, suggesting that the facility “is a testament to our long-term confidence in Türkiye and our strong commitment to contributing to the country’s energy and industrial goals.”
Increasingly hot and dry weather is disrupting crop planting across Asia, sparking concerns about food supplies in the world’s most populous region, and an expected severe El Niño could inflict further damage.
From India’s grain-producing northwestern plains to Australia’s eastern wheat belt, and from Thailand’s rice fields to Indonesia’s vast palm oil plantations, hot weather and below-normal rains are hurting crops and forcing farmers to reduce planting, farmers, analysts and traders said.
El Nino-driven dryness is a double blow for farmers already grappling with fertiliser and diesel shortages caused by the Iran war.
Wheat prices have risen about 20% since the start of 2026, largely on concerns over drought in key U.S. growing regions. Rice prices at major Southeast Asian export hubs have climbed around 15% over the past month on rising production costs and fears of tighter supplies.
One of the strongest El Ninos on record is widely expected to develop in the second half of 2026, bringing hot-dry weather to Asia and excessive rains to the Americas, with global climate change making things worse.
“The El Nino impact globally starts with Southeast Asia, India, Australia, before it has wider implications downstream in North America and South America,” said Chris Hyde, a U.S.-based meteorologist at satellite data and imagery firm SkyFi.
Hyde said early signs of drought are already visible on the company’s high-resolution imagery platform, across parts of Asia.
Hot-dry weather hit farms
In India, the meteorological department last week further reduced its forecast for the four-month monsoon season, which delivers about 70% of annual rains.
“With temperatures across most parts of the country remaining well above normal, conditions are currently unfavourable for the timely sowing of summer crops,” said one New Delhi-based dealer with a global trade house.
“Planting is likely to be delayed due to the late onset of the monsoon, but greater concern lies in the possibility of below-normal rainfall and prolonged dry spells after its arrival.”
India mainly grows rice, soybeans, pulses, sugarcane and corn in the summer season.
For Southeast Asian countries, dryness is hitting rice and palm oil yields in some areas.
“Everybody is worried (about drought), it’s risky,” said Nerawat Oramah, a 47-year-old farmer in central Thailand’s Chainat province.
“For my second harvest, I have to wait and see the situation. It’s a risk for everyone (if there is not enough water), there will only be one harvest.”
Thailand and the Philippines plant their main rice crops in June-July, while Vietnam and Indonesia are now sowing their second-season crops.
Indonesia’s most populous Java island and some areas in northern Sumatra, south Kalimantan and Sulawesi have not experienced any rain for more than 10 days, according to the country’s meteorological agency, with medium to low rainfall expected in June.
Higher prices
Rice prices are edging up even though India, which accounts for 40% of global exports, is sitting on ample supplies after years of near-record harvests.
“There is a clear indication of crisis as rice prices have moved substantially higher without any major shortage,” said one Singapore-based trader at an international trading company, adding Thai rice prices have climbed around 15% in the past month.
“India has a huge rice stockpile, several times more than what it needs. But the thinking is that very soon India will start looking at these stocks as a critical asset and may introduce some sort of export curbs if we see problems with the early part of the monsoon.”
However, KKP Research, a unit of Kiatnakin Phatra Bank in Thailand, said some of the impact of the dryness could be cushioned by strong reservoir levels.
“What we are more concerned about is fertiliser supply,” the bank said in a note to Reuters. “We estimate that a fertiliser shortage, if it occurs, could reduce rice production by up to 15-20% in the worst case.”
Recent rains over parched Australian farmland have triggered late wheat sowing, but growers are wary of the El Nino in the coming months that could hit yields.
The Bureau of Meteorology is predicting that many cropping areas across New South Wales and Queensland will see between 20 and 40 millimetres less rain than usual over the next three months.
John Lowe, a farmer near Burcher in central New South Wales, said his total cropping area is still around 30% smaller than it could have been.
El Nino is likely to be neutral for China and the Black Sea region, while bringing more rains to the Americas.
“Statistically speaking, there is not much correlation with weather in the U.S. and El Nino, during the summer,” said Drew Lerner, an agricultural meteorologist and president of World Weather Inc.
“In a lot of years, we can come up with a little bit more moisture in an El Nino summer. But that does not really mean above-normal rainfall.”
A top Turkish economy official said Thursday that the government’s commitment to the disinflation program remains “firm,” suggesting also that inflation is “expected to continue falling” even in a year marked by major shocks.
“Our commitment to the disinflation program is firm. Even in a year of major shocks, inflation is expected to continue falling, and to end the year in the mid-20s,” Treasury and Finance Minister Mehmet Şimşek said.
In a post on social media platform X, the minister noted he addressed investors at the Nomura Investment Forum Asia 2026. He also touched upon key messages shared at the Fireside Chat on “Türkiye’s New Route to Financial Stability.”
“We live in a shock-prone world and a tough neighbourhood. Shocks may slow the pace of the program’s delivery, but they are unlikely to change the direction of travel,” he wrote.
Türkiye, since the middle of 2023, has been pursuing a tighter monetary policy through an economic program aimed at reining in soaring prices and ensuring sustainable growth.
The annual inflation rate in April stood at 32.37%, with a monthly increase of 4.18%, according to official data. May data is due to be released on Friday.
The data in April marked a slowdown in the disinflation trend, following the start of the U.S.-Israel war on Iran, which sent energy prices sharply rising and revived inflationary pressures around the world.
Fiscal goals, lira target
On fiscal performance, Şimşek suggested that the “track record speaks for itself.”
“Over the past 23 years, Türkiye’s average budget deficit has been 2.6% of GDP. We reduced the deficit from 5.1% in 2023 to 2.9% in 2025 through spending controls, the fight against informality, stronger tax compliance, and improvements in audit and revenue collection,” he noted.
“Even after deploying fiscal space to cushion higher oil prices through the sliding-scale mechanism, we remain on track to meet our 2026 target and to keep the deficit below 3% of GDP over the medium term,” he added, referring to the special mechanism introduced amid the Iran war to offset the surge in energy prices.
On the lira, the minister said they “do not target a specific level,” explaining that the “confidence in the lira has strengthened significantly since the program began.”
“This reflects a tight monetary stance, effective macroprudential measures, and an FX reserve position that is fundamentally stronger than in previous episodes of volatility.”
Moreover, reflecting on the current account, Şimşek said that high energy prices “are likely to widen the deficit, but the impact remains manageable.”
“Softening domestic demand and resilient exports are likely to limit the fallout from the war,” he maintained.
“Exports are supported by supply-chain reconfiguration, the EUR/USD parity, and higher value-added production. We expect the current account deficit to be around 3% of GDP, below its long-term average,” he added.
At the same time, Şimşek shared the details of the recently unveiled measures and framework through which Ankara seeks to attract foreign direct investment (FDI), talent, and capital:
– Halving the corporate tax rate for manufacturers to 12.5%.
– A full tax exemption on services exports, including software, video gaming, medical tourism, education, engineering, and design.
– Zero corporate tax on transit trade.
– A new regional headquarters regime for multinationals, offering a 20-year corporate tax exemption and no income tax on salaries up to four to six times the minimum wage.
– The world’s longest non-dom regime, running for 20 years, with foreign-source income untaxed, inheritance tax at 1%, and only Turkish-source earnings taxed.
– A new home for startups: Fully digital company formation, tax-efficient ESOPs, venture capital tools, and a flagship hub at Atatürk Airport-Terminal Istanbul.
– A One-Stop Shop under the Presidential Investment and Finance Office for company formation, permits, tax, land, and incentives.
– An asset repatriation framework allowing cash, gold, and securities to be declared under a clear, FATF-aligned regime with varying tax rates based on asset type and holding period.
Türkiye’s unemployment rate rose 0.1 percentage points month-over-month to 8.2% in April, official data showed on Thursday.
Employment fell by 356,000 and labor force participation also declined, the data shared by the Turkish Statistical Institute (TurkStat) revealed.
The number of unemployed people age 15 and over fell by 5,000 month-on-month to 2.87 million, while a larger decline in the labor force contributed to the increase in the unemployment rate, according to TurkStat.
The unemployment rate was estimated at 6.8% for men and 11% for women in April.
Employment declined during the month, with the number of employed people falling by 356,000 to 32.17 million. The seasonally adjusted employment rate decreased by 0.6 percentage points to 48.1%. The employment rate stood at 65.4% for men and 31.2% for women.
The labor force fell by 361,000 month-on-month to 35.03 million in April, while the labor force participation rate dropped 0.6 percentage points to 52.4%.
The participation rate was 70.2% for men and 35% for women.
Youth unemployment, covering the 15-24 age group, decreased by 0.8 percentage points from the previous month to 14.5%. The rate was 12% for young men and 19.4% for young women.
The average weekly actual working hours of people at work rose by 0.3 hours month-on-month to 42.1 hours in April.
Growth is set to slow this year across many developing markets as soaring energy costs and supply chain disruptions caused by the Middle East war weigh on activity, the European Bank for Reconstruction and Development (EBRD) said Wednesday.
Economies in the 41 countries covered by the development finance institution are expected to expand at a slower-than-forecast 3.1% this year, 0.5 percentage points below the level forecast in February.
“This report is a story of the continued energy shock,” EBRD Chief Economist Beata Javorcik told Reuters. “It hit at the moment that was challenging for Europe, a moment where the sentiment in European manufacturing has been weak.”
The bank flagged slower growth in key nations including Türkiye, Ukraine and Egypt.
But the biggest revisions from its February forecast came in Lebanon and Iraq, slashed by 6 percentage points and 5.1 percentage points, respectively. Both economies are expected to contract this year – Lebanon by 2% and Iraq by 1.5%.
For Türkiye, the bank cut its growth forecast to 3.5% from 4% for 2026 and to 4% from 4.5% for 2027.
It cited rising energy imports, persistent inflationary pressures and Iran war spillover risks on tourism and manufacturing supply chains.
“Disinflation is costly and acts as a brake on the economy, but the cost of not addressing inflation would be much higher,” Javorcik said.
Last year, EBRD region economies grew at a quicker-than-expected rate of 3.4% as they rapidly adapted to tariff and trade turmoil.
Inflation
“The conflict in the Middle East has delivered a new shock to regions already navigating weakness in manufacturing industries and fragile fiscal positions,” Javorcik said.
“Higher energy costs are squeezing competitiveness, reigniting inflation and tightening fiscal space at a time when many economies can least afford it,” she added.
Inflation rose by 1.2 percentage points between February and April to an average of 6.4%, with the bank warning that further food price increases – should higher fertilizer costs hit yields – would be felt most in lower-income EBRD economies.
It also cautioned that higher borrowing costs mean inflation spikes are no longer reducing debt-to-GDP ratios as they did after COVID-19.
The EBRD in April announced it was unlocking 5 billion euros ($5.8 billion) to help shore up economies hit by the Middle East war.
Shift from industry to AI
Energy price spikes this year have stayed below the surge after Russia’s 2022 invasion of Ukraine, but European gas prices are still around five times U.S. levels.
The report says this is already shifting exports away from energy‑intensive sectors, while AI‑related exports from EBRD regions are growing faster – rising 42% year-over-year in Hungary and 21% in Poland in 2025.
“This is a bright spot… the region already has comparative advantage in some of those industries,” Javorcik said, adding the AI boom could create opportunities and help cushion a structural adjustment as a result of the energy shock.
Almost two-thirds of EBRD economies, and around a quarter of economies globally, have implemented at least one measure to conserve energy or support consumers in response to higher energy prices.
Javocik warned that removing or lowering taxes on fuel “destroys the incentive for people to buy less and that may exacerbate sort of shortages going forward.”
The global economic outlook hinges on how long the war in the Middle East lasts, with recession in some countries and sharply higher inflation a real possibility if it drags on into next year, the Organisation for Economic Co-operation and Development (OECD) warned on Wednesday.
If the conflict proves short-lived, Gulf oil and gas production could gradually return to pre-crisis levels from the third quarter with shortages confined to Asia and cushioned by strategic reserves and shipments from other producers.
In that baseline scenario, global growth is projected to slow from 3.4% in 2025 to 2.8% in 2026 before picking up to 3.1% in 2027, broadly in line with the OECD’s March forecasts.
In its previous economic outlook, the group of 38 industrialized countries had forecast 2026 global growth of 2.9%.
“The longer the disruption lasts, the greater the economic, but also the social cost of this crisis, and it certainly will make policy changes much more difficult,” OECD chief economist Stefano Scarpetta told a press conference.
If energy disruption persists well into next year, global growth could slow sharply to 2.1% in 2026 and 1.8% in 2027 – rates rarely seen outside major crises such as the 2008 to 2009 financial crash or the COVID-19 pandemic.
Some economies could fall into outright recession, with Asian countries reliant on Middle East energy supplies expected to be hit hardest.
In the protracted disruption scenario, higher energy prices could add 0.4 percentage points to global inflation in 2026 and 1.3 percentage points in 2027, likely prompting central banks to hike interest rates by 0.5 to 0.75 percentage points in the short term.
In the baseline scenario, the OECD forecast that inflation across G-20 economies would peak at 4% this year before slowing to 3.1% next year with interest rates largely on hold this year and cuts expected next year.
“Around one-third of OECD economies are projected to experience negative real wage growth this year. Workers in these countries will see their living standards fall, which is the human reality behind the inflation numbers,” OECD Secretary-General Mathias Cormann said.
Global trade growth is set to moderate following a strong 2025, though robust demand for AI-related goods and investment, especially in Asia, should provide some support.
Uneven outlooks
In the baseline scenario, stronger energy exports are expected to support U.S. growth, partly offsetting the drag from higher prices on household purchasing power. Growth is projected to ease from 2.1% in 2025 to 2.0% in 2026 and 1.8% in 2027.
In Europe, eurozone growth was seen slowing from 1.4% to 0.8% this year before rising to 1.2% next year as resilient labor markets and higher defense spending help offset government belt-tightening.
In Britain, growth is projected to slow to 0.9% this year before recovering to 1.1% in 2027 as global trade stabilizes and financial conditions ease.
In Asia, China was seen slowing from 5.0% growth in 2025 to 4.5% in 2026 and 4.3% in 2027 with ample energy reserves limiting exposure to oil price spikes. Exports are set to benefit from lower U.S. tariffs and a competitive tech sector, although a property slump remains a drag.
Japan is expected to be among the hardest-hit by trade disruptions linked to the Gulf conflict, with growth slowing from 1.1% in 2025 to 0.6% in 2026 before edging up to 0.8% in 2027, a downgrade from March.
While subsidies will help cushion the energy shock, the OECD said Japan needs a “clear and credible” plan to rein in public finances over the medium term as interest rates rise.
Türkiye forecasts
The Paris-based organization also trimmed its 2026 growth forecast for Türkiye, citing weaker domestic demand amid high energy and commodity prices and tighter financial conditions, while leaving its 2027 outlook unchanged.
OECD cut its 2026 projection to 3.1% from 3.3% in March, and expects growth to rise to 3.8% in 2027.
“After some initial weakness in the first half of 2026, domestic demand is expected to pick up once the economic fallout from the Middle East conflict diminishes,” it noted.
As a net importer of energy and fertilizers, Türkiye remains exposed to higher prices, which will continue to weigh on inflation and the current account, and in turn could trigger currency depreciation and boost imported inflation, it added.
The OECD stressed that bringing inflation down remains the policy priority and requires sustained tight macroeconomic settings.
“Achieving rapid disinflation will require continuously tight monetary policy,” it said.
After easing earlier in the year, disinflation is expected to regain pace in the second half of 2026 and through 2027.
Consumer prices rose almost 4.2% month-over-month and nearly 32.4% on an annual basis in April, mainly driven by Iran war-linked pricing pressures.
According to OECD, headline inflation is projected to fall to 15% year-over-year by the end of 2027, supporting stronger private consumption and lifting growth.
Upside risks persist, including high energy prices and rising inflation expectations if policy action lags.
The OECD sees the interest rates likely remaining on hold amid high commodity prices, before decreasing to 20% by the end of next year.
At its last meeting, the Central Bank of the Republic of Türkiye (CBRT) held its benchmark one-week repo rate steady at 37%.
The bank said geopolitical risks and energy price volatility continued to pose uncertainty for inflation.
Separately on Wednesday, the European Bank for Reconstruction and Development (EBRD) cut its Türkiye growth forecast to 3.5% from 4% for 2026 and to 4% from 4.5% for 2027.
The EBRD cited rising energy imports, persistent inflationary pressures and Iran war spillover risks on tourism and manufacturing supply chains.
“Disinflation is costly and acts as a brake on the economy, but the cost of not addressing inflation would be much higher,” EBRD chief economist Beata Javorcik said.
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