At USD 5.8bn, May's current account deficit was below the market consensus (USD 6.2bn) but closer to our forecast (USD 5.9bn)
Consequently, 12-month cumulative current account deficit declined to USD 67bn in May from USD 69bn in April. Similarly, 12-month cumulative non-energy current deficit fell to USD 16.3bn from USD 18.5bn.
The contribution of gold exports to Iran continued at a slower pace
Net gold exports in May were USD 0.4bn, from USD 0.7bn in April. According to our calculations, seasonally adjusted current account deficit excluding gold and energy remained broadly flat in May.
The main financing items were private sector's borrowing and deposit flows
Private sector's short-term borrowing amounted USD 2.4bn, whereas medium- and long-term borrowing was USD 3bn, bringing medium- and long-term debt rollover ratio to 140%. In addition, net trade credits amounted USD 2.0bn. Non-residents' deposits in Turkey increased by USD 1.4bn whereas private sector withdrew USD 1.3bn of its deposits abroad. FDI was relatively strong at USD 1.3bn. As to portfolio flows, inflows to domestic bond market was USD 0.8bn whereas equity market has seen outflows amounting USD -0.4bn. Net errors and omissions were USD -1.4bn.
We expect current account deficit at 7.4% of GDP this year
The narrowing in the current account deficit has been strong so far. On a 12-month cumulative basis, non-energy current account deficit has shrunk significantly from its peak of USD 32.8bn in September 2011, to USD 16.3bn in May 2012. In addition, the recent decline in oil prices further favours the outlook of the current account deficit. Looking onward, we expect the 12-month cumulative current-account deficit to continue to narrow until Q4; however, the pace of adjustment is likely to slow in parallel to the pickup in economic activity and oil prices.