Turkey: The narrowing in the current account deficit has neared to an end

Turkey: The narrowing in the current account deficit has neared to an end

At USD 4.5bn, November's current account deficit was lower than the market consensus and our forecast (USD 4.8bn). Consequently, 12-month cumulative current account deficit declined to USD 51.9bn, from USD 52.8bn in October. Non-energy current account balance on a 12-month cumulative basis turned into a surplus of USD 0.4bn, from a deficit of USD 0.8bn in October. 12-month cumulative net gold exports increased to USD 5.6bn, from USD 5.2bn in October, and continued to contribute to the narrowing in the current account deficit.

The main external financing item in November was private sector borrowing (USD 4.5bn), of which USD 2bn was achieved through eurobond issuances by banks and non-financials. As a result, private sector medium-and long-term debt roll-over ratio was realised at 243%. Inflows to the TRY bonds and equities were also strong at USD 1.4bn and USD 1.6bn, respectively. In addition, net trade credits were USD 0.4bn. Non-residents' deposits in Turkey decreased by USD 0.5bn whereas private sector increased USD 1.3bn of its deposits abroad. Consequently, net deposit outflows amounted to USD 1.85bn. FDI was muted at USD 0.3bn. Net errors and omissions were USD -0.6bn. The CBRT's reserves continued to increase by USD 0.6bn in parallel to higher FX and gold reserve requirement holdings by the banks.

We expect economic activity to accelerate further as hinted by the strong credit growth, increase in confidence indices, and PMI readings of above 50. This would lead to an increase in imports and consequently, current account deficit, excluding gold and energy is expected to increase gradually from December. We expect current account deficit to reach USD 65bn by end-2013 from an estimated USD 52.5bn in 2012.


Selim Çakir