Account deficit narrows on revenues in services

ISTANBUL - Hürriyet Daily News

An increase in revenues from construction services propped up the performance of the services sector, which helped decrease the current account deficit in May. Hürriyet photo

Turkey’s current account deficit dropped by 25.9 percent year-on-year to $5.8 billion in May, according to the Central Bank’s monthly report. The significant fall in the deficit, which was slightly above market expectations, was supported by an increase in services sector surplus.

The main reasons behind the performance of the services sector were an increase in revenues from construction services and a slowdown in the pace of the tourism industry’s downward trend, according to a Vakıfbank report issued yesterday.

Other positive factors in the closing of the gap were a drop in oil prices and the value of the Turkish Lira, and a slowdown in domestic demand which pulled down imports, according to the Economic Research Department at Vakıfbank. According to the estimates of Vakıfbank, the current account deficit sat at about 2.3 percent of the gross domestic product (GDP) in May, excluding energy imports. The overall deficit was at 8.8 percent in May, the bank’s economists estimate.

“Possible increases in the value of the Turkish Lira and oil prices may bring the slowdown in the current account deficit to an end,” Vakıfbank’s report said.

Oil prices - which hit $128 per barrel in March, the highest level seen this year - dropped to nearly $100 in May.

The value of lira

A faster than market expectation drop in the current account deficit will support the lira in the short term, Gizem Öztok Altınsaç, an economist at Garanti Yatırım, said yesterday.

Market expectation for the current account deficit level for May was at least $6.1 billion.

“Falling current account deficit figures show that the balancing process in the economy is continuing,” said the Garanti Bank Economic Research Department in a report yesterday. The report said the fall was based on limited improvements seen in particular revenues and services, but cautioned: “Figures above expectations regarding the economic activity for the rest of the year and global economic growth due to European [financial woes] may slowdown the downward trend in the deficit. Our current deficit estimate for 2012 is at $64 billion with a forecast of an annual oil price average at $110 per barrel.”
The current account deficit dropped $9.9 billion to $27.1 billion in the first five months of 2012 compared to the same period last year. Between January and May 2012 foreign trade shrank $8.3 billion to $28.9 billion, the net income from services increased $879 million to $4.5 billion and the net expenditure dropped $750 million to $3.2 billion.

Tourism revenues, a services item, decreased $341 million to $5.9 billion and tourism expenditure shrank $554 million to $1.5 billion in the first months of this year compared with the same period of 2011.

The current account deficit has been on a downward trend for the last seven consecutive months, dropping to $66.9 billion annually in May, which is the lowest amount since October 2011 when the figure was $78.6 billion.

Economy Minister Zafer Çağlayan said yesterday in a written statement that his year-end annual current account deficit expectation was about $65 billion or 8 percent of GDP.

Direct international investments in the first five months of the year increased 10 percent, he said, adding that investment incentives would contribute to an improvement in the deficit in the upcoming period.