MS: Turkey Economics: A Lower CAD, Thanks to Oil

At US$2.2 billion, corresponding to a 9%Y decline, the current account deficit (CAD) for January was lower than our and consensus expectations, at US$2.7 and US$2.4 billion, respectively. The annual CAD declined by US$0.2 billion to US$31.9 billion, representing 4.4% of GDP. 

The contribution from the energy part was quite strong in January; we expect a similar trend in the energy part of the CAD to continue in the remainder of the year with the assumption that oil price remains at US$37 on average.  

On the financing side, portfolio inflows and FDI as well as unexplained inflows were quite weak, while banks and corporate borrowings were strong, as also confirmed from the high debt rollover ratios for LT loans.   

However, looking only at the long-term rollover rates can be misleading. When we combine short-term and long-term borrowings, banks are still borrowing more than what they repaid; however, the net amount they borrowed is trending down sharply. 

Further contribution from lower energy prices in the remainder of year is likely to be offset by lower tourism revenues and an increase in non-energy goods deficit. 

The effect from the tourism sector is likely to be more visible after June, as almost two-thirds of revenues are recorded in the June-October period. The risks are to the upside if we see bigger declines in tourism revenues than what we pencilled in and/or oil price continues its upward trend.