Widely as
expected, Turkey’s external rebalancing continued albeit at a more modest pace
in November. Despite the recovery in imports, the 12-month trailing CAD
continued narrowing thanks to the resilience in exports (which is only partly
explained by higher gold exports to Iran). As exports lose momentum and as
domestic demand and hence imports recover, we see the improvement in external
balances to diminish in the coming months. However, thanks to the strong
performance in the first eleven months of the year, the CAD will likely fall to
US$52.2bn (6.5% of GDP) in 2012. This compares with the 2011 deficit of
US$77.1bn (10.0% of GDP).
This improvement
in external balances along the general improvement in the investor appetite for
Turkish assets has allowed Turkish companies to broaden their financing means.
Recent data show that both banks and corporate have started to issuing bonds in
international markets. This surely improves Turkey’s debt dynamics as it leads
to longer maturities. On a more negative note, continued external borrowing and
the emergence of new external funding means make the CBRT’s job in managing
loan growth and domestic demand more challenging. We think that this is one of
the main factors behind the CBRT’s increased cautiousness in recent weeks. In
particular, this explains why the CBRT has started underlining the importance
of macroprudential measures (rather than the policy rate) in achieving
financial and price stability.
Turkey posted a
current account deficit of US$4.48bn (exactly equal to our forecast but better
than the market consensus of US$4.8bn) in November. The CAD was as large as
US$5.4bn in November 2011. Hence, 12-month trailing CAD fell to US$51.9bn (6.5%
of GDP) in November from US$52.8bn (6.7% of GDP) in October. True, some of the
improvement was thanks to higher gold exports to Iran and since Turkey is not a
gold producer this performance cannot be sustained. However, even excluding
gold trade, there has been a significant narrowing in the CAD (to 7.2% of GDP
from 9.4%) in the first eleven months of the year.
BOP data also show that as
expected Turkey is facing no difficulty in financing its declining CAD.
Financing comes mostly through portfolio investments. Thanks to the Halkbank
SPO, November saw an inflow of US$2.4bn into the equity market while inflows
into the bond market were US$1.4bn, unchanged from October. As was the case in
previous months, corporates and banks faced no difficulty in rolling over their
LT debt repayments in November. The rollover ratio was 137% for corporate and
128% for banks. More importantly, both corporate and banks are now using the
international bond issuance more effectively. Banks borrowed US$1.3bn through
bond issuance while the corresponding figure was US$0.7bn for corporate in
November. To repeat, bond markets help the companies in diversifying their
funding sources and more importantly allowing them to extend the maturity of
new borrowing. Thanks to strong capital inflows, official reserves rose
US$0.6bn in November. We expect this trend to continue in the coming months.
JPMorgan
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