Turkey's current account deficit grew by less than expected in April, widening to $1.33bn, the central bank said on June 16.

The median estimate of 14 economists polled by Reuters showed a deficit of $1.5bn in April while year-end forecasts showed a deficit of $10.35bn. The gap stood at $27.63bn in 2018.

Last year’s Turkish lira crisis, which wiped off around a third of the value of the local currency against the dollar, has pushed up import prices, causing the current account deficit to narrow significantly. The gap looks set to shrink in the months ahead given higher exports and the high tourism season.

Finance Minister Berat Albayrak said the annual current account balance would show a surplus starting from June.

Depletion limited
Looking at the latest current account data, Serkan Gonencler noted that the capital account saw a $5.2bn outflow, but with inflows through the “net errors [and omissions]” item reaching $3.8bn, the depletion in official reserves was limited to $2.8bn.

“Capital outflows through the portfolio account reached a whopping USD4.5bn in April, of which USD2.4bn seems to be through the residents’ asset purchases abroad and USD1.4bn due to the Treasury’s maturing Eurobond,” Gonencler added in a note.

He also observed: “Deleveraging process keeps on, as another harbinger of the growth slowdown Banks were net debt payers once more (to the tune of USD0.8bn), as was the case in every month since May 2018. Banks’ total net debt (loan) redemption since then reached USD18.7bn, while the average rollover ratio for long-term loans was 67% over the same period.

“The corporate sector, however, seems to have added a mere USD0.16bn worth of new debt (rollover ratio: 103%) in April. Although the corporate sector also slowed down international borrowing over the past 12 months, it still managed (or preferred to) accumulate debt over the past 12 months of USD3.0bn, with a 130% rollover ratio. Taking loans and Eurobond issuances of the private sector (banks and corporates) together, we see that the net debt reduction for the past 12-month trailing period was USD14.0bn. This deleveraging process has been another factor for the growth slowdown.”

The analyst concluded that even if the downward trend in the deficit reverses in the latter part of the year, Seker Invest expected only a $4-5bn C/A deficit, or even lower, by end-2019. “In fact, should the GDP growth performance deteriorate due to a new bout of TRY depreciation, the economy may well produce a C/A balance surplus, or probably a negligible (USD1-2bn) deficit at end-2019.” he said.

Increasing residents’ assets abroad
Muhammet Mercan, an analyst at ING, also noted that “in the breakdown, capital outflows are mainly attributable to increasing assets of residents abroad with the acquisition of US$2.4 billion financial assets mainly by corporates and a rise in the FX currency and deposit assets of banks at US$3.1 billion in April. So, it seems residents have kept acquiring assets abroad, amounting to US$32 billion on a 12-month rolling basis, driven mainly by transfer of FX by banks to their corresponding banks abroad at US$23.4 billion.”

He added in a note: “Portfolio inflows painted a mixed picture with non-residents selling a mere US$78 million in the equity market and US$0.7 billion in the bond market while net issuance of the Treasury after heavy activity in the previous months was US$-1.4 billion. However, banks managed to issue US$0.5 billion bonds.”

In his summary, Mercan said: “Overall, the correction in external deficit on the back of weak domestic demand and increased competitiveness will likely continue in the period ahead albeit at a slower pace. Outflows accelerated in April, signalling that the outlook will remain challenging.

“The global backdrop of increasing market expectations of Federal Reserve rate cuts given weakening prospects for global trade and global investment can impact countries like Turkey.”