CAD widens but no worries as export bounces back to double digits

The Turkish Statistics Institute (TurkStat)’s latest data, released on Tuesday, showed CAD increased by 89.4 percent in the first seven months of this year over the same period of 2009, despite a significant 13.4 percent rise in exports. According to those figures, Turkey’s total volume of exports in the January-July period was $64.4 billion, a 13.4 percent increase over the same period last year. However, its imports saw an even higher jump, at 32.1 percent, reaching $99.3 billion. These two seven-monthly numbers equate to a $34.9 billion current account deficit for the country this year, up 89.4 percent from $18.4 billion over the same period of 2009.

Speaking to Today’s Zaman, Demir listed two primary reasons for the widening out the deficit: Valued-Turkish lira and rising imports of intermediary goods especially fuel and equipment. “Though exporters complain about the valuation of lira, it should be seen as a good thing because Turks no longer see foreign currency as saving mechanism. Moreover, increasing imports is an indication of growth in the economy along with the rising exports” he said. “When we look at overall finance movements and balance of payments in Turkey, I do not see any cause for a concern realy” Demir added.

In their evaluations, analysts from Roubini Global Economics late last month confirmed Demir’s comments with a salt of grain.  “The widening of Turkey’s current account deficit looks like a new development--in fact, it’s a post-recession return to business as usual” the report said, stressing that persistent current account deficit reflects structural issues related to the country’s trade composition, heavy dependence on imported energy and low savings rate.

Demir said Turkey has no choice but allow high CAD to stimulate exports since the manufacturing industry in Turkey heavily relies on imports especially on fuel and energy needs. Therefore it makes it difficult for the country to rely on export growth to narrow the deficit.

Roubini analysts also caution that the real issue for Turkey is the deterioration in the quality of its financing. “Foreign Direct Investment (FDI)--among the most stable sources of inflows--is below 2009 levels. A significant uptick in FDI in 2011 looks unlikely as more than 80 percent of Turkey’s FDI comes from European countries, and Roubini Global Economics foresees a sluggish, below-trend recovery there” the report said.

Demir sees the capital in-flows and out-flows as an indication that market is functioning well on its own terms. “We are not under any risk at the moment. Our foreign currency reserves are expanding and we do not have any difficulty in raising funds in international markets” he said.

Exports continue to grow

Yesterday (Wednesday) came a positive note to the current account deficit of Turkey. Turkey’s exports continued its upwards movement in August, rising by 11.44 percent compared to one year ago, a spike in double-digit growth rates with compare to moderate single digit in July. According to figures released by Turkish Exporters Assembly (TİM), exports amounted to $8.562 billion in August. Export volume reached $72.97 billion in the first eight months of the year, a 12.95 percent increase compared to same period last year. The 12-month cumulative amount also increased to reach $110.50 billion.

According to TİM’s data, the automotive industry, the backbone of Turkey’s exports, bounced back its export figures to five percent increase in August after having suffered a 6.09 percent year on year drop in July. The ready-wear sector came first in August with seven percent increase over the same month last year and posting 12 percent increase for the first eight months of the year over last year. The growth in export of chemical products recorded 18 percent in August.