Turkey’s November current account deficit rose 34% y/y to $5.6bn, slightly above forecast

By bne IntelliNews January 13, 2015

The current account deficit widened 33.7% y/y to $5.64bn, the highest figure recorded in 2014, in November on top of the 23% y/y rise in foreign trade deficit, the Central Bank said on January 13. This is slightly higher than the market consensus deficit forecast of $5.45bn.

Foreign trade deficit was $6.58bn in the month, representing a 22.7% y/y and 41% m/m increase. Exports declined 7.9% y/y to $14bn while imports remained almost unchanged at $20.6bn from October to November.

The current account deficit fell 32% y/y to $38.7bn in January-November while annualized deficit rose to $47.1bn in November from $45.7bn in October.

Net foreign direct investments amounted to $1.04bn in November, financing 18% of the CA deficit while net portfolio investments stood at $3.2bn. Data of the Central Bank showed an inflow of $524mn into Turkish equities in November following an inflow of $433mn in the previous month. There was an inflow of $1.95bn into government debt securities that followed an inflow of $382mn in October.

In the first eleven months of the year, net direct investments and net portfolio investments amounted to $4.3bn and $18.6bn versus $8bn and 23.9bn a year ago, respectively. The Central Bank also reported an outflow of $3.5bn through the net error and omissions account in November that came on top of the $1.9bn of outflow in the previous month, bringing the total inflow via this account to $2.3bn in January-November versus an inflow of $2.4bn a year ago.

Banks’ net borrowing through bond issues in the capital markets stood at minus $208mn, bringing the net borrowings in eleven months to $10.2bn, and official reserves recorded a net increase of $5.2bn in January-November, the Central Bank said.

The latest data pointed a deterioration in Turkey’s external rebalancing. The declining oil prices, if continues, is expected to help Turkey reduce its large current account deficit in the months to come. It is calculated that every $10 drop in the oil price reduces Turkey’s annual current account deficit by around $4.5bn. Turkey spends around $45bn-$50bn on energy imports each year. On the down side is the sluggish economic recovery in Europe, Turkey’s main export market. Geopolitical risks also put pressure on Turkish exports. The Turkish Exporters' Assembly (TIM) reported on January 1 that Turkey's exports rose 1.1% y/y to $13.14bn in December after falling 6.4% y/y in November. Exports in the whole of 2014 amounted to $157.6bn, an all time high, representing a 4% increase from 2013. Sales of goods to the EU rose 9% y/y in 2014 while exports to Iraq contracted 10.1% y/y to $10.66bn in the year.

The government's updated medium-term programme forecasts that the current account deficit will fall to $46bn at the end of 2014 from $65bn in 2013. For 2015, the government also foresees a CA shortfall of $46bn (or 5.4% of GDP). A Reuters poll of economists showed earlier this week that Turkey’s CA deficit is expected to narrow to $45bn at the end of 2014. Turkish Deputy Prime Minister Ali Babacan said on January 7 that 2015 will be a better year than 2014 in terms of inflation, current account deficit and GDP growth. Babacan also said that the government targeted a current account deficit of 5.6% of GDP for 2014 but real data seems to come lower than the target. Turkish Finance Minister Mehmet Simsek told on January 7 that if oil prices remain around $50-$60, current account deficit may decline to 3%-3.5% of GDP. Turkish economy minister Nihat Zeybekci said on December 26 that he expects the current account deficit to be around 5.1%-5.2% of GDP at the end of 2014. The WB expects the current account shortfall to shrink to $38.4bn in 2015 (4.5% of GDP) from an estimated $44.9bn (5.6% of GDP) in 2014. Oil prices of $70bbl in 2015 will ease the current account deficit by 1.1pp, shave 0.9pp off consumer price inflation, boost growth by 0.6pp, and the impact on the fiscal balance is limited to less than 0.2pp of GDP, the WB said.

The Central Bank said on December 31 in the minutes of the last monetary policy committee (MPC) meeting that Europe’s slowing economy and geopolitical tensions have caused exports to lose some pace, however, the favorable developments in the terms of trade and the moderate course of consumer loans are expected to contribute to the improvement in the current account balance. The Central Bank’s monthly survey of economists showed on December 19 that economists revised their current account deficit expectations for 2014 to $44.6bn from $46.7bn. The 2015 CA deficit is now seen at $44.7bn, down from $50bn in the previous survey.

Last month, Fitch's senior director, Paul Rawkins, told the news agency Anadolu that the declining oil prices will further help reduce the current account deficit and will take some of the pressure on the current account deficit.

(USD bn) 2013 2014 y/y
CURRENT ACCOUNT -56.7 -38.7 -32%
      exports 147.7 155.0 5%
      imports 219.6 211.7 -4%
      foreign trade balance -71.8 -56.7 -21%
CAPITAL ACCOUNT -0.096 -0.054 -44%
FINANCIAL ACCOUNT -54.378 -36.487 -33%
       Net FDI -8.019 -4.29 -47%
       Net Portfolio Investment -23.924 -18.644 -22%
Source: tcmb      

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