Current account deficit recovery lasted a short time
While all other indicators were deteriorating, it was only the current account deficit that maintained its optimistic expectation. However, with the recently released March figures, current account expectations have also started to deteriorate.
According to the Central Bank’s May expectation surveys, while consumer price index inflation expectation for the end of 2015 went up to 7.5 percent, expectations regarding growth had a horizontal course, with a 3.61 percent growth expectation for the 2015. Meanwhile, despite the appreciation of the Turkish Lira lately, expectations about the dollar exchange rate also continued to deteriorate; end of year dollar exchange rate expectation went up to 2.77 liras in the May survey.
On current account, on the other hand, there had been an optimistic expectation since January; however, in May, the deficit expectation rose again, reaching $38.3 billion. The expectation of current account deficit for 2016 has also increased up to $43.7 billion.
As a matter of fact, since the beginning of the year, especially with the fall in oil prices, there had been an optimistic expectation for the current account deficit. It is evident that the rise in oil prices in the past month up to 14 percent has played an important role in the deterioration of the expectations regarding the current account deficit.
Also, the March current account deficit released last week was distinctly above the market expectation of $4.4 billion; it was $5 billion. In the first quarter of 2015, the current account deficit decreased 7.4 percent compared to the same period of the previous year but on the basis of 12 months, together with the accelerations in March, it went up to $45.5 billion.
In this increase, downward revisions in tourism and suitcase trading were effective.
Market players were expecting the ratio of the current account deficit to national income, which was 5.8 percent at the end of 2014, to decrease to 5 percent and even lower. However, in light of the latest data, the ratio for the current account deficit is again estimated to be around 5.5 percent.
Rapid fall in the reserve
With the deterioration in current account deficit expectations, the financing of the deficit is now debated more intensely. While there is stagnation in inflow, a constant foreign currency exit is seen and the decreasing Central Bank reserves in such a critical period are increasing the risks regarding macro equilibriums.
In March, the foreign currency reserves of the Central Bank decreased $6.6 billion. Main opposition Republican People’s Party (CHP) Deputy Chair Faik Öztrak said, “There is a serious financing issue of the current account deficit. The erosion of $6.6 billion in official reserves is significant and it is a record in the history of the republic.” Öztrak said gross foreign currency reserves were around $128 billion in the first week of March; they went down to $123.5 billion in the last week of the month, going further down to $121.9 billion in the first week of May. He also reminded that this reserve is inadequate for the financing needs of $180 billion.
Once again, Turkey is going through the anxiety of current account deficit before elections.