Turkey’s current account deficit (CAD) fell 4.4% y/y to $3.2bn in February, above the market consensus forecast of $2.75bn, showed data of the central bank on April 10. The decline in CAD deficit was a sharp 60% in January when the shortfall amounted to $2bn. Imports declined by 7% y/y to $16.2bn, but more worryingly exports fell by 6% y/y to $13.1bn in February. 12-month rolling CAD declined to $42.82bn in the month from $42.97bn in January.

The central bank reported $973mn worth of FDI inflows into the country, down from $1.6bn of foreign direct investment inflows a year ago and January’s $1.8bn. FDI inflows financed 30% of the CAD deficit in the month. Data also showed a $479 portfolio outflows into Turkey’s financial markets vs $1.82bn inflow in the previous month, but the portfolio outflows were more than $1bn in February 2014. There was a $503mn outflow from Turkish equities vs $462mn inflows a month ago. The central bank reported $970mn outflow from government bonds that came on top of the $281mn outflow, bringing the total amount to $1.1bn in the first two months of the year, compared to January-February last year when the bond market saw an outflow of $2.2bn. Banks borrowed $1.11bn in international capital markets through bond issuances, said the central bank.

The central bank also reported $4.3bn inflows in February under the “net error and omissions” item vs $1.3bn outflows in the previous month.

As a result, the current account deficit amounted to $5.2bn in the first two months of the year, pointing to a 37.5% y/y declined.

The government expects the CAD to be $46bn (or 5.4% of GDP) this year while it forecasts the deficit to widen to $49.2bn (5.4% of GDP) next year. Economy minister, Nihat Zeybekci, however, said this week that the CAD could come in at 4% of GDP this year. Lower oil prices and weak domestic demand will probably help Turkey reduce its current account deficit, but Turkey is vulnerable to potential capital outflow shocks.