Turkey’s C/A deficit expected to reach 4% of GDP this year -Goldman


ISTANBUL, March 26 (Reuters) – Turkey’s current account deficit is expected to reach $32 billion or 4.0% of GDP this year, higher than the 2.5% previously forecast, Goldman Sachs said, quoting the rising commodity prices due to war in Ukraine and Ankara’s reluctance to raise rates.

The trade balance – chronically negative in Turkey, which depends on imports – will be somewhat relieved by foreigners, including Russians buying real estate, the Wall Street bank said.

But “these inflows will not be enough to finance the growing current account deficit, and (official foreign currency) reserves and the Turkish lira will be under pressure,” he said.

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High commodity prices would make “Turkey’s current account adjustment harder rather than easier”, he added.

“We now expect a Turkish current account deficit of 4.0% (previously 2.5%) of GDP in 2022”, and it could be higher “if the authorities again resist a slowdown in domestic demand and push to growth,” Goldman said.

Turkey imports virtually all of its oil and gas needs and has seen costs soar as Russia’s invasion of Ukraine led to sanctions that sent commodity prices soaring. It is also heavily dependent on Russia and Ukraine for grain imports.

This has jeopardized the unorthodox economic program adopted by President Tayyip Erdogan, based on low interest rates, higher production and exports to achieve a current account surplus.

Erdogan said this week that it would be ambitious to expect a surge in tourism this year, in a nod to the impact of the war.

The central bank’s rate cuts to 14% left real rates deeply negative as inflation soared to 54%. Inflation is expected to hover above 60% for much of the year.

“At this point, we don’t expect them to raise the official policy rate,” Goldman said. But the bank “will eventually have to respond, and possibly will do so through new instruments, macroprudential measures, tightening through other channels or other heterodox measures.”

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Reporting by Jonathan Spicer; edited by Barbara Lewis

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