The current account deficit shrank 43.4% y/y to USD 3.19bn in March, in line with the market consensus forecast of USD 3.2bn. The main reason behind the improvement in the CA deficit is the 43% y/y decline in the foreign trade deficit that stood at USD 3.3bn in March. Exports were up 13% y/y and imports fell 3% y/y in the month. We should note that imports rose 9.5% m/m in March after falling 5.6% m/m in February.

Net FDI inflows stood at USD 965mn in March, representing a 26.8% y/y increase. FDI financed 29.1% of the current account deficit. In February, Turkey attracted USD 1.22bn worth of FDI. The Central Bank reported USD 1bn of portfolio outflows in March that followed a USD 1.5bn outflows in February. In March 2013, Turkey saw USD 3.9bn worth of portfolio inflows. There was an inflow of USD 811mn into the equity market versus the outflows of USD 84mn in February and USD 523mn in March 2013. Non-residents’ equity security transactions recorded net purchases of USD 408mn in the first quarter, the Central Bank said. Non-residents’ holding of government debt securities fell by USD 1.7bn in the month and total outflows from the bond market amounted to USD 3.87bn in Q1. Local banks borrowed USD 341mn in March and USD 461mn in Q1 from international markets. Inflows through net error & omissions stood at USD 6.6bn in the quarter versus an outflow of USD 3.9bn a year ago.

In the first three months of the year, Turkey’s current account deficit fell by 30.8% y/y to USD 11.46bn as foreign trade deficit narrowed 30.4% y/y to USD 11.99mn. Data for March support the view that the improvement in the current account deficit is continuing. The government expects the CA deficit to shrink to USD 55.5bn or 6.4% of GDP this year from USD 65bn or around 8% of GDP last year.