At USD 3.9bn, Turkey’s November current account deficit was lower than the market expectation of USD 4.2bn.

The November CA deficit was also 3.5% less than what it was in the same month of 2012, the Central Bank said on Tuesday. Foreign trade deficit shrank 2.2% y/y to USD 5.15bn with exports rising 3.7% y/y to USD 15.55bn and imports increasing 2.2% to USD 20.7bn. This could be a sign of rebalancing but further data needed for a better assessment.

On the financing side; net FDI inflows declined to USD 409mn in November from USD 544mn a month earlier but they were 4.1% higher compared to November 2012. Net FDI inflows financed only 10.4% of the USD 3.9mn CA deficit in November, underlining the poor quality of CA finance. Portfolio inflows dropped 75.6% y/y and 67.4% m/m to USD 1.2bn. Net tourism revenues were also down 1.9% y/y and a sharper 55.3% m/m to USD 1.4bn. There was an inflow of USD 772mn into Turkish equities in November, comparing favourably with an inflow of USD 641mn in the previous month and an inflow of USD 2.4bn a year earlier. Foreign investors sold USD 1.18bn worth of government debt in November, higher than the outflow of USD 297mn in October, also comparing unfavourably with foreigner investors’ purchase of USD 1.4bn worth of government securities in November 2012. Banks raised a total of USD 131mn through bond issue and they borrowed a net USD 2.95bn from abroad.

The CA deficit increased to USD 55.96mn in January-November from USD 45.63bn in the same period in 2012, very close to the government’s end-2013 CA forecast of USD 58.8bn (or 7.1% of GDP). The government expects the CA deficit to fall to USD 55.5bn (or 6.4% of GDP) in 2014. Excluding the gold trade, the current account deficit was USD 45.5bn in the first eleven months of the year, the Central Bank said.

The decline in the CA deficit may continue in the period due to the slowing domestic demand which will mean fewer imports. Government announced a series of measures to curb the use of credit cards and credit growth. However, political stability combined with U.S FED’s decision to reduce asset purchases may quicken outflows from the Turkish markets, consequently raising concerns about the financing of the country’s large current account deficit, one of the highest in the EM universe.