With its hefty energy import bill and high inflation, Turkey is an obvious winner from the drop in oil prices, which economists expect to help improve its current account deficit. But will other troubles neutralize the benefit of lower oil prices?
The country’s energy import bill last year of about $50 bn – roughly equivalent to the size of its 12-month running current account deficit – puts Turkey firmly on the right side of the slide in oil prices, which have declined 25 per cent from this year’s peak in June.
But Turkey’s dependence on foreign capital, which makes it particularly sensitive to changes in global liquidity, could offset this advantage. This dependence led Morgan Stanley to put Turkey in its “fragile five” last year. Read more
Turkey should adopt a “sufficiently restrictive” monetary policy to dampen inflation and balance growth or remain at the mercy of uncertain capital flows, the Organisation for Economic Co-operation and Development (OECD) recommended in a report on Thursday.
The report tells a familiar story: Turkey’s dramatic growth in the 2000s was mainly driven by domestic demand and has led to a large current account deficit and external debt. This leaves the economy vulnerable to turmoil in global financial markets as was seen in 2013 and earlier this year.
But the tightening is unlikely to come soon. Last month Turkey’s central bank opted to cut rates by 75 basis points to 8.75 despite inflation being almost twice the bank’s 5 per cent target.
If market consensus is correct, Turkey’s central bank will raise interest rates on Tuesday evening. It’s an issue that has gripped investors, partly because of the opacity of Turkish monetary policy over the past central years. But putting the mechanics to one side, what would be the impact of tighter monetary conditions on Turkey’s economy?
Beyondbrics has taken a look. Read more
This week, Turkey reported better than expected growth figures. But Thursday, it came out with worse than expected current account figures – a $5.8bn deficit for July, compared with an expected $5.5bn or so.
So the phenomenon widely seen as the Turkish economy’s biggest Achilles heel – the deficit that makes the country deeply reliant on foreign funds – is still stubbornly large. This at a time when foreign resources are expected to be in much less bountiful supply, due, among other factors, to the prospect of US Federal Reserve tapering its monthly bond buying programme. Read more
In these days of increased scrutiny of emerging markets, it is always important to keep a close eye on the most telling numbers about an individual economy.
One such figure came this week, when Turkey reported a higher than expected rate of growth for the second quarter – 4.4 per cent, compared with expectations of 3.5 per cent or so. There were other stories tucked away in the data – notably the importance of household consumption, state spending and inventory building in boosting demand, even as private sector investment declined. But overall the news was certainly a fillip to the government in a difficult economic environment. Read more
It looks like a case of whiplash Thursday for Turkey.
Ankara is looking to stave off a decline in the lira and avoid a rise in interest rates – and all that entails for growth prospects and the prime minister’s denunciations of a shadowy interest rate lobby. Developments this week have made things even harder. Read more
So is this where Turkey ends up? Balance of payments figures out on Tuesday show that the country had a $5.6bn current account deficit for the month of January.
While broadly in line with expectations that seems to confirms a pattern some may find unsettling: a year of big falls in the deficit has come to an end, and the still hefty monthly total is overwhelmingly financed by portfolio funds rather than foreign direct investment. Read more
That was quite a drop.
Turkey’s current account deficit, seemingly all but out of control in 2011, plunged in 2012. According to central bank statistics released on Wednesday, the total fell from $77.2bn in 2011, just about the highest in the world outside the US, to $48.9bn last year. Read more
Turkey is borrowing at the cheapest rates in its history, as demand for the country’s debt continues to push yields down for both foreign and domestically denominated issues.
On Wednesday, the country’s treasury said it had issued $1bn in long-term dollar-denominated debt at its lowest ever cost: just 4.352 per cent yield for a 29-year bond. It came as benchmark two-year domestically denominated debt also broke new records, reaching yields of 5.7 per cent – more than 500 basis points down for the year so far. Read more
Turkey on Thursday reported its 10th successive monthly decline in the current account deficit, raising hopes that the country is achieving results in efforts to put its volatile economy on a more stable footing.
The deficit narrowed in August to $1.2bn, its lowest since 2009 and well below market forecasts of $1.6bn, making the cumulative deficit for the year $36.1bn versus $54.2bn for the same months last year. It’s all enough to have analysts looking forward to a possible credit re-rating – and promotion to investment grade. Read more
News that Turkey succeeded in trimming $2bn of its current account deficit (CAD) in May might sound like cause for celebration.
But while a reduction in cumulative CAD from $69bn to $67bn between April and May has been greeted warmly by analysts none are under any illusion that it represents a final turning of the corner. Read more