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- The foreign
trade data produced the second market friendly surprise in a
row.
- The
recovery in gold exports contributed significantly, but even
excluding gold, exports continue growing at a respectable
pace
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External rebalancing will likely gain pace in the coming
months.
March foreign trade
data confirmed that Turkey’s external rebalancing has started
gaining momentum. In fact, the foreign trade data surprised in a
market friendly way for the second consecutive month in a row. We
expect this process to gain pace in the coming months and see the
current account deficit narrowing from US$65 billion (7.9% of GDP)
in 2013 to US$46 billion (5.7% of GDP) in 2014.
Turkey posted a foreign
trade deficit of US$5.2 billion, down 30.1%oya in March. The result
compared favorably with the market consensus and the J.P.Morgan
forecasts which stood at US$5.7 billion and US$5.5 billion,
respectively. Exports reached US$14.7 billion, up 12.4%oya and
imports were US$19.9 billion, down 3.0%oya in March. True, part of
the improvement was thanks to the rise in gold exports, but exports
were up 4.8%oya even when gold exports were excluded.
Going forward, we
expect the improvement in external balances to continue mainly
because 1) higher interest rates, macroprudential measures and tax
hikes implemented by the government and poor sentiment all lead to
weaker domestic demand and hence lower imports; 2) the currency
depreciation enhances the competitive power of Turkish exporters;
3) Turkey continues benefitting from the recovery in EU demand; and
4) the improvement in gold trade will likely continue. Actually
some of these factors were already present in the March foreign
trade data. For instance, Turkey’s exports to the EU countries
increased 13.5%oya in the third months of the year. Especially
worth noting were the exports to Germany (up 16%), the UK (up 30%)
and Poland (up 21%). Continued penetration into the Iraq market
(exports to Iraq were up 8% in March) and the improvement in the
relations with Israel (exports to Israel were up 25%oya) were some
of the other factors behind the export strength. Not surprisingly
March saw a 15%oya decline in exports to Russia.
As far as imports are
concerned, March data confirmed the weakness in consumption demand
while showed recovery in investment appetite. While capital good
imports were up 8.3%y/y, consumer good imports were down 12.0%y/y
in March. In fact, this is in line with the developments in the
loan market. There has been a sharp slowdown in consumer loan
growth while commercial loan growth remains robust. That suggests
that this favorable trend will continue, supporting the macro
financial stability, the rebalancing process and the decrease in
inflation.
Finally, a monthly
trade deficit of US$5.2 billion will likely translate into a
current account deficit of US$3.4 billion in March. As a result,
the 12-month trailing CAD will likely fall sharply to US$59.9
billion in March from US$62.2 billion in February.
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