Turkey: No surprises on c/a deficit

Turkey: No surprises on c/a deficit

At USD 1.96bn, current account deficit was slightly below the market consensus (USD 2.1bn) and our forecast (USD 2.0bn) in October. As a result, 12-month cumulative current account deficit declined to USD 53.1bn from USD 55.7bn in September. Similarly, 12-month cumulative non-energy current account deficit fell to USD 1.4bn, from USD 3.9bn. Net gold exports continued to support the narrowing in the current account deficit. 12-month cumulative net gold exports amounted to USD 5.2bn, from USD 3.7bn in September. Current account deficit, excluding gold and energy also continued to improve, partly reflecting the holiday effect in October.

On the financing side, private sector borrowing was the main financing source in October. Private sector’s medium-and long-term borrowing, driven by Eurobond issues of banks, reached USD 4.9bn, implying a roll-over ratio of 189%. Inflows to domestic bond market amounted to USD 1.4bn. Other portfolio inflows were also strong at USD 1.7bn. Non-resident deposits increased by USD 1.7bn as well. FDI was USD 0.3bn, whereas unidentified inflows were USD 0.7bn. The CBRT’s reserves increased USD 4.5bn in October.

Since the beginning of the year, current account deficit reached USD 41bn, around USD 24bn less than the deficit observed during the same period in 2011. Around USD 10bn of this correction is due to net gold exports according to our calculation. Bulk of the current account deficit was financed through portfolio inflows; inflows to domestic bond market reached USD 14bn and non-resident deposits to USD 11bn. Private sector’s medium-and long-term debt rollover ratio reached 125%. Unidentified inflows also accounted for USD 6.6bn of the financing. FDI inflows remained at USD 7bn. The CBRT’s gross reserves increased by around USD 21bn mostly on the back of CBRT’s ROC policy.

We expect economic activity to pick up in November and onwards as hinted by the strong credit growth and PMI readings above 50. The significant monetary easing of the CBRT will continue to trickle down to economic activity. Accordingly, current account deficit, excluding gold and energy is set to increase from November on. We expect net gold exports to lose pace and to be limited to USD 0.5bn till year-end. Further increase in net gold exports could lead to a lower c/a deficit relative to our forecast. All in all, we expect current account deficit to finish the year at USD 53bn or 6.6% of GDP in 2012.


Selim Çakır