Ana Sayfa English Widening of t...

Widening of the Annual CAD Started As of June, İş Investment

Rapor-119-Dolar-02Current account balance posted a deficit of USD4.9bn in June wider than our estimate of USD4.4bn as well as market median call of USD4.3bn. Deviation in our call was stemmed from the higher than expected income transfers (FDI, portfolio and interest) to foreigners. With the monthly figure, annual CAD widened on monthly basis for the first time since July15. Widening of the annualized non-energy and non-gold deficit by USD3.0bn MoM (compared to 1.7bn in headline), shows that falling energy bill (USD0.8bn) and rising gold exports (USD0.5bn) still work in favor of correction in CAD.

Tourism revenues, fell by 43%YoY in June, carried the YtD loss in tourism revenues to 28%. Sluggish outlook in tourism sector despite the normalization of relations with Russia creates upward risk in our tourism loss estimate of 25% for the whole year.

On the financing, we see a gigantic inflow of USD10.2bn back on the USD5.5bn inflows of TL and FX deposits held abroad by local banks and residents (Banks: USD4.2bn in FX and USD0.7bn in TRY denominated; residents: USD0.7bn). On the flip side, foreign banks lowered their deposits held in Turkey by USD2.2bn, which limited the capital inflows to Turkey. Finally, we see an inflow of USD3.8bn through long-term borrowing of banks and corporates.

Net FDI inflows added only USD0.3bn to CAD finance. On the flip side we saw a tiny outflow of USD59mn from equity market. Thanks to the Treasury’s USD1.0bn worth of Eurobond issue, inflows to bond market remained sound at USD1.2bn. Finally, net errors and omissions stole USD1.5bn from CAD finance. Back on these developments, official reserves increased by USD3.7bn.

In the first half of the year, portfolio flows reached to USD8.3bn much better than USD3.8bn outflow in the same period of last year. Meanwhile, net FDI added USD2.3bn, private sector borrowing added USD7.7bn and changes in domestic and foreign bank’s deposits added USD6.0bn. In our view, capital inflows to Turkey will continue in the second half of the year as the domestic and external uncertainties are broadly ended.
In our view, widening of the current account deficit started as of June. We keep our annual CAD estimate at USD37bn. Risks are balanced on our call. On the bright side, lower than expected oil price keeps the deficit tight. Whereas, sluggish outlook in tourism sector creates upside risk to our contraction of 25% in tourism revenues for the whole year. In addition, recent news about extending the number of installments and/or lifting the ban on sale of some items through credit card will bring further pressure on current account deficit.

Muammer Komurcuoglu

IS Investment
Economist | Research