Turkey’s C/A deficit has risen to 4% of GDP this year – Goldman

Protest against high energy prices in Istanbul
Women gather to protest against high energy prices in Istanbul, Turkey, February 13, 2022. REUTERS/Dilara Senkaya/File Photo

March 26, 2022

ISTANBUL (Reuters) – Turkey’s current account deficit is expected to widen to $32 billion, or 4.0% of GDP, this year, up from the 2.5% previously forecast, Goldman Sachs said, citing rising commodity prices due to the war in Ukraine and Ankara’s reluctance to raise prices.

The trade balance — chronically negative in import-dependent Turkey — is getting some relief from foreigners, including Russians, buying property, the Wall Street Bank said.

But “these inflows will not be enough to fund the growing current account deficit and both (official foreign exchange) reserves and the Turkish lira will come under pressure,” it said.

High commodity prices would “complicate rather than facilitate Turkey’s current account adjustment,” she added.

“We now forecast Turkey’s current account deficit at 4.0% (previously 2.5%) of GDP in 2022,” and it could be higher “should the authorities again resist a slowdown in domestic demand and push for growth,” it said Goldman.

Turkey imports virtually all of its oil and gas needs and saw costs rise as Russia’s invasion of Ukraine prompted sanctions that sent commodity prices skyrocketing. It is also heavily dependent on Russia and Ukraine for grain imports.

That has jeopardized President Tayyip Erdogan’s unorthodox economic program based on low interest rates, higher production and exports to achieve a current account surplus.

Erdogan said this week it was ambitious to expect a serious surge in tourism this year, alluding to the impact of the war.

The central bank’s interest rate cuts to 14% have turned real rates sharply negative as inflation has risen to 54%. Inflation is expected to be above 60% for much of the year.

“At this point, we don’t expect them to raise official interest rates,” Goldman said. But the bank “will have to respond at some point, and may do so through new tools, macroprudential measures, tightening through other channels, or other heterodox measures.”

(Reporting by Jonathan Spicer; Editing by Barbara Lewis) Turkey’s C/A deficit has risen to 4% of GDP this year – Goldman


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