Turkey: Rising oil prices and buoyant domestic demand stoke record current account deficit in March
May 11, 2011
In March, the current account incurred a record deficit of USD 9.8 billion. The result overshot market analysts' expectations of a USD 8.2 billion shortfall, but exceeded the revised USD 6.3 billion deficit recorded in February. As a result, the current account deficit over the last 12 months continues to widen, reaching USD 60.5 billion in March (approximately 7.5% of GDP), up from a USD 48.4 billion deficit recorded in the full year 2010 (6.6% of GDP). The rapid deterioration in the external account reflects an increasing disparity between domestic demand and GDP growth, which has been driven by surging imports. The buoyant pace of import growth is raising concerns among Turkish monetary authorities, who wish to rebalance GDP expansion via measures designed to slow domestic demand, and thus increase the contribution from net exports to overall growth. The current policy mix aims to curb short-term capital inflows and decelerate domestic credit growth. Rising oil prices are also contributing to the external imbalance, as oil imports represent nearly 20% of total Turkish imports. Despite authorities' efforts, imports continue to skyrocketing, rising 45.4% over March 2010 in USD terms (February: +49.2% year-on-year), while exports decelerated somewhat, adding a more subdued 17.0% over the same period (February: +19.5% yoy). As a result, the trade deficit increased to USD 68.1 billion in the 12-month period to March 2011, which is a record high.