Turkey’s current account (CA) deficit narrowed 59.8% y/y to $2bn in January as foreign trade deficit fell 50.7% y/y, data of the Central Bank showed on March 11. January’s CA shortfall is less than the markets had expected (Reuters poll: $2.57bn). The 12-month rolling deficit decreased to $42.9bn from $45.9bn in December 2014.

Exports rose only 0.6% y/y but imports dropped 13.9% y/y in the month. The Turkish Exporters’ Assembly (TIM) reported earlier this month that exports plunged 13% y/y in February.

FDI inflows amounted to $1.79bn versus $1.25bn a year ago while there was an inflow of $1.88bn through portfolio investment in January, comparing favourably with an outflow of $246mn in the same month of 2014. The Central Bank reported $462mn inflow into Turkish equities but the bond market saw $281mn outflow versus $1.1bn outflow a year ago. General government borrowed $1.5bn via bond issues in international capital markets while banks and other sectors borrowed $244mn and $58mn on net basis, said the Central Bank. The Bank also reported an outflow of $1.46bn through net error and omissions versus $2.48bn of inflows a year ago and $908mn outflow in December 2014.

The economists forecast a current account deficit of $38.75bn at the end of 2015. The government expects the current account shortfall to be $46bn (5.4% of GDP) this year and forecasts the deficit to widen to $49.2bn (5.4% of GDP) next year. Lower oil prices will help Turkey reduce its current account deficit but the current risk is the depreciation of TRY, which has lost almost 10% of its value against the dollar this year. The Central Bank has taken a series steps to defend TRY and their results are yet to be seen. The slow recovery in Europe, Turkey’s main export market, is the other problem. Recent macro data, such as the PMI index and industrial production, suggest economic activity is not strong which suggests that Turkey’s imports may have remained weak in the first months of the year.