Turkey expected to see current account surplus in Oct

Annual deficit estimates down to $29.5 bln from $33 bln

ISTANBUL, Dec 8, (RTRS): Turkey is expected to see a current account surplus of $2.55 billion in October, a Reuters poll showed on Friday, as a currency crisis has driven up the cost of imports and weakened domestic demand.

Turkey’s current account, which has long been in deficit, has been a major concern for investors because it makes the economy reliant on speculative foreign inflows to finance the shortfall.

But following a currency crisis that saw the lira plunge as much as more than 40 percent since the start of the year, the current account recorded rare surpluses in August and September, as the cost of imports surged.

“The determining factor here is the decrease in imports, which is due to slowing in domestic demand and exchange rate effects. We don’t see anything that points towards a structural transformation,” said Nilufer Sezgin, chief economist at Is Portfoy.

“Therefore, whenever economic activity starts to pick up, whenever domestic demand starts to pick up, then we may see an increase in the annual current account deficit,” she said, adding that she expected the improvement in the current account balance to continue in 2019.

The current account balance is expected to register a surplus of $2.55 billion in October, according to the median estimate in a poll of 16 economists by Reuters, up from last month’s surplus of $1.83 billion. Forecasts for October ranged between a surplus of $1.3 billion to $3 billion. Last year in October, the current account showed a deficit of $3.84 billion.

The poll also showed that the current account is expected to record an overall deficit of $29.5 billion in 2018, down from the $33 billion deficit forecast in a previous Reuters poll.

Thirteen economists contributed to the full-year current account forecast.

The lira remains down nearly 30 percent against the dollar this year, having recovered some losses since it hit a record low in August. Its steep decline knocked global financial markets and put Turkey’s economic woes in sharp focus. Investors are particularly worried about the outlook for the banking sector and the real economy.

As a result of the weak lira, Turkey’s trade balance, which makes up the largest portion of the current account, has narrowed in recent months.

The trade deficit stood at $0.53 billion in October, shrinking 92.8 percent year-on-year, according to the Trade Ministry.

The lira’s sell-off was sparked by concern about President Tayyip Erdogan’s control over monetary policy. Erdogan, a self-described “enemy of interest rates” wants lower interest rates to support debt-burdened companies and to keep the economy growing.

Finance Minister Berat Albayrak, who is Erdogan’s son-in-law, has said the current account surplus could reach an all-time high in October. The central bank is due to release October current account data on Dec 11 at 0700 GMT.