Turkey’s current account deficit narrows to $2 billion upon oil slump

ANKARA

Turkey’s current account deficit narrowed to $2 billion in January, beating estimates, thanks to the decrease in oil prices and the fall in the foreign trade deficit in the same period, according to data released by the Central Bank on March 11.

The annual current account deficit fell to $42.87 billion in January from $45.85 billion in the previous month, according to the data.

Analysts expect a further decrease in the current account gap as the economy slows down and Turkey’s energy costs decrease upon the oil slump.

The deficit showed a difference of about nearly $3 billion, as declining oil prices cut the value of imports sharply, the Bank data showed.

Turkey’s GDP growth has slowed since the second quarter of 2014, slipping to 1.7 percent in the third quarter of last year. Inflation is still well above 7 percent, significantly higher than medium term economic program targets.

The Central Bank attributed the decrease in the current account deficit to a $2.6 billion drop in the foreign trade deficit and a $277 million surplus in the income of the services sector.

“A drop in the current account deficit could be explained by declining energy prices, such as oil and natural gas, and commodity prices, such as iron and rice,” Emre Özsöz, an academic at the State University of New York told Anadolu Agency.

Direct investment net inflow stood at $1.6 billion, while portfolio investment was at $1.61 billion in the same period.

Garanti Investment Chief Economist Gizem Öztok Altınsaç said the current account gap may narrow to $35 billion by the end of 2015 over an average oil price at around $58.

“Turkey started the year in an advantageous position. We have, however, started to see capital outflows following the announcement of the Central Bank’s Inflation Report on Jan. 27 and the rising discussions over the Bank’s moves,” she told to Reuters.

A decrease was seen in capital inflows to Turkey by the end of January, analysts said.

“Other investment” recorded a net inflow of $4.27 billion, while the “currency and deposits” item recorded a net inflow of $3.52 billion, according to the Central Bank data.

“Specifically, banks’ currency and deposits within their foreign correspondent banks recorded $312 million on a net basis, while nonresident banks’ deposits held within domestic banks recorded a net increase of $3.4 billion,” the Bank stated.

The “under services” and “transportation” item recorded a net inflow of $214 million, an increase of $104 million, while the “travel” item recorded a net inflow of $990 million, increasing by $84 million compared to the first month of last year.

With regard to loans obtained from nonresidents, repayments worth $357 million were made to the Turkish government. Banks and other sectors realized a net disbursement of $1.45 billion and $889 million respectively, mainly owing to short-term loan disbursements.

Meanwhile, regarding bond issues in international capital markets, the government borrowed $1.5 billion, as banks and other sectors borrowed $244 million and $58 million on a net basis respectively, according to the data.