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Current account deficit could double this year, report finds
Deloitte Turkey’s Economic Outlook 2010-January report revealed that the Turkish economy could have a much larger current account deficit this year over the historic low seen during the 2009 global financial crisis. The report cited an anticipated slump in foreign capital inflow as the major factor that would lead to an increase in the current account deficit in 2010.
Turkey’s current account deficit fell to $13.9 billion in 2009, a 67 percent decrease compared to 2008. The company report predicts the 2010 current account deficit could near $30 billion.
Analysts have argued that despite recent signs of a nascent recovery, the Turkish economy will find it harder than expected to continue a sustainable resurgence due to an increasing need for foreign capital.
According to the Deloitte report, the Turkish economy needs some $70 billion of foreign capital inflow in 2010 while the country will have to repay some $25 billion of debts in foreign loans before the end of the year.
Turkey could have easily attracted the amount of foreign capital it needs for this year under normal circumstances; however, the current global credit crunch makes such a target hard to attain, the report read. The amount of foreign direct investment (FDI) that Turkey attracted in 2009 was $6.5 billion; this number is expected to reach $8.5 billion this year, very little when compared to the amounts in past years. Turkey attracted an annual $20 billion in FDI in 2006 and 2007, while this number was $17 billion in 2008 when the adverse impact of the crisis began to be felt in the markets.
Last year’s FDI was derived mainly from mergers and acquisitions (M&A) in the real estate sector and relatively smaller private companies. For 2010, the privatization of electricity generation facilities, highways and the national lottery along with the Başkent Doğalgaz Distribution Co. (BaşkentGaz) and the İstanbul Ferry Lines (İDO) are expected to bring some $2.5 billion in FDI to Turkey.
In addition to low FDI levels this year, public debt also poses a problem for the economy According to Treasury data, the public debt will reach some TL 181.6 billion this year.
The Deloitte study also predicts that the central bank will have to revise its inflation target for this year. The report says Turkey’s inflation rate will hover around 8 to 9 percent through the end of the year. Turkey finished 2009 with a 6.5 percent annual inflation rate. The central bank recently set a 8.3 percent upper limit for its inflation target in 2010. The report cites increases in energy prices along with taxes and a recovery in domestic demand as the major factors that will provoke an increase in inflation this year. Meanwhile, the company does not expect the Turkish lira to gain much in value this year.
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