Anxieties over Turkey's overheating economy are strengthening with the central bank announcing on January 12 that the country's current account deficit widened by 86% y/y to $4.2bn in November. The markets had expected a deficit of $3.9bn to be posted for the month.
The cumulative deficit also grew, rising by 37% y/y to $39.4bn in January-November.
Turkey's economic health, it is clear, is dangerously reliant on hot inflows of foreign external financing to enable growth. Even though the central bank upped borrowing costs by around 450 basis points in 2017, the TRY continued to devalue.
The government expects the current account deficit to come in at 4.6% of GDP, or $39.2bn, in 2017. However, the markets expect a deficit of $45bn to be recorded for the full year.
The Turkish lira gained 0.4% d/d against the USD to trade at 3.7570 as of 16:00 local time on January 12 while the benchmark BIST-100 was up 0.49% to 115,285.
Despite all the worries of imbalance, Turkey continues to finance its current account deficit via portfolio inflows. Turkish equities experienced a slight net inflow of $206mn in the week ending January 5. The total equities inflow in 2017 topped $3.34bn, in line with the scope of portfolio inflows into the emerging markets universe. Consequently, the Istanbul bourse experienced many all-time highs last year.
Turkish government debt securities, meanwhile, attracted a net inflow of $36mn in the first week of 2018. There was an overall inflow of $7.13bn into the debt securities in 2017.
The central bank’s total gross international reserves, including gold and FX reserves, rose to $111.5bn as of January 5 from $107.8bn at end-2017.