Covid effects expected to be a fragility factor for current account balance

In April, the current account balance in Turkey, gave USD 5.1 billion deficit.

In April, the current account balance in Turkey, gave USD 5.1 billion deficit. Although the current account deficit announced on a monthly basis realized above market expectations, it is not at a level to create a surprise effect. On the annualized basis, on the current balance side, we have gone to a deficit position for the first time after long months with 3.29 billion USD. The deepening effect of the current account deficit, which started with March, seems to have continued increasingly in April with Covid.

 

The overall year of 2020 will be very difficult for macro balances due to Covid. The fact that the export markets cannot exhibit a potential for an increase during the epidemic, when the production and demand components are simultaneously broken, is the main factor in the increase in the current account deficit. In April, we faced with the fact that exports reflect the collapse effect of foreign demand, although both the import and export are shrinking in terms of Covid-19 virus' widest range and direct effects. Another factor is the lack of tourism and service revenues during this period, which seems to be a problem especially in the summer months. In summer months, due to the fact that the outbreak will not be evident, there are various scenarios in this regard, measures to protect the supply of services and psychological effects will be negative suppressors in terms of income in this group.

 

While net outflows originating from direct investments were realized as 133 million USD in April on the financing side, it was observed that there was a net outflow of 2.4 billion USD on the portfolio side. While net sales were 847 million USD in stocks, net sales of 1 billion USD were realized in debt instruments. Official reserves decreased by 8.6 billion USD. We see that the use of intensive reserve for the current account deficit continues. While the current account balance yielded a deficit of 12.9 billion USD in the January - April 2020 period, it is observed that the net error and omission item indicated a net outflow of 3.69 billion USD.

 

It is difficult to predict how the current balance will shape the rest of the year. The Covid effect will continue to have an impact on export and import breakdowns, and will be suppressive, in particular for revenues. After June, we expect that the effect of the gradual recovery on demand will be delayed a little more, both in our economy and in our main export markets economies. Especially in the summer, it is necessary to monitor whether there is a second wave related to the epidemic and its effect on consumption / demand naturally. In terms of economic growth, 1Q20 indicated 4.5% growth, but for the rest of the year, from 2Q20 the picture is not clear and we are not at the positive projection point. While production and demand (both domestic and external demand) go down together, indicators such as confidence indices, capacity utilization (idle capacity will increase in the economy), or commercial credit growth of banks continue to reflect the outbreak conditions.

Source: Tera Menkul
Hibya News Agency
 

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