Energy To Keep External Deficit Wide
BMI View: Despite a sharp slowdown in domestic demand, Turkey's current account deficit will remain uncomfortably high in 2014 at 6.0% of GDP due to relatively inelastic demand for imported energy. Turkey will continue to rely on short-term capital flows for external financing, implying that the financial account will remain susceptible to volatility in global investor risk sentiment.
We estimate Turkey's current account deficit to have widened from 6.2% of GDP in 2012 to 7.9% in 2013, the second highest shortfall on record. Although this pronounced deterioration was in part due to one-off factors including base effects from the now defunct "gas for gold" trade with Iran (see 'Financing Risks Remain', August 16 2013), it was primarily a symptom of strong domestic demand growth, Turkey's dependence on imported energy, and robust financial account inflows through much of 2013. In 2014, Turkey is entering a period of slowing growth that will help to rein in imports and reduce its external financing requirement. However, we forecast the deficit to remain uncomfortably high, falling only slightly to 6.0% of GDP in 2014, as relatively inelastic demand for imported energy prevents a more rapid correction.
In 2013, Turkey's energy trade deficit totalled US$49.2bn, which represents approximately 75% of the total current account deficit. Although we expect a slowdown in domestic demand in 2014 (see 'Turning More Bearish On Growth', January 31), our forecast for modest real GDP growth of 1.8% implies that the country's overall energy demand and import bill will remain relatively constant despite falling global energy prices. Our Oil & Gas team forecasts Turkey's hydrocarbon deficit to fall by just 0.7% in US dollar terms, and to total 6.5% of GDP in 2014, by our estimates.
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