bne -

Turkey's current account deficit, the economy's Achilles heel, narrowed to a seven-month low in June. However, the full-year figure is still likely to come in above the government's target.

The current account gap shrank to $4.45bn in June, a far better performance than the $7.3bn in May, central bank data released on August 15 showed. The result beat a forecast of $5.1bn by a Bloomberg survey, and approached the $4bn or so it stood at a year ago. Analysts say the improvement was down to the impact of the Gezi Park protests, the foreign exchange adjustment that is cooling domestic demand for imports, and increased output in the services industry.

Recognising the issue as the economy's biggest vulnerability, Prime Minister Recep Tayyip Erdogan's government managed to reduce the shortfall to about 6% of GDP last year, from above 10% in 2011. As such, the narrower deficit in June should be cause for celebration.

However, a wider look at the figures shows that with the June data included, the current account deficit totalled $35.9bn in the first half of the year. That's $5.9bn higher than in the same period of 2012. "The year-end expectation [for the current account deficit] in the Medium-Term Program is $60.7bn," Economy Minister Zafer Caglayan said in statement. "We're already past half of this amount. For now, it seems like the data will come slightly higher than the Medium-Term Program estimation."

While he believes the current account deficit this year will be lower than the consensus of $55bn-60bn, Tim Ash of Standard Bank suggests it will still be very high by historical comparisons. It will also be difficult to finance, given the weight of short-term debt falling due, resistance by the central bank to higher interest rates, and a weaker lira. "Over $160bn in short-term external debt falls due over the next year, putting the gross external financing requirement up at around the $210bn mark, huge both by historical and peer group comparisons," he notes.