Cheaper Oil Can’t Save Turkey’s Deficit From Export Slump

By Selcuk Gokoluk

Photographer: Kerem Uzel/Bloomberg

Pedestrians walk along Istiklal Street in the Beyoglu district of Istanbul, Turkey. The... Read More

A stagnant euro-region economy, fighting in Iraq and sanctions against Russia are battering Turkish exporters, neutralizing the benefit from tumbling oil prices and consigning the lira to further declines.
With Brent crude prices at the lowest level in four years, Turkish energy imports will drop $250 million per month, according to Akbank TAS. Even so, the current-account deficit will be 5.8 percent of gross domestic product this year, the highest among 24 major emerging markets, International Monetary Fund estimates show. The gap widened 26 percent to $3.05 billion in August from a year earlier, economists said before tomorrow’s report.
The lira has slumped almost 7 percent in the past three months, with two-year notes the second worst among developing nations, as investors bet
rising U.S. interest rates will draw capital from Turkey. The weaker currency is undermining the benefits of a 17 percent decline in oil in the period, which traded at $88.50 a barrel today, while exports are falling in its top two markets.
“Even if the oil price remains below $90, the deficit will still be too high over the medium term,” Evren Kirikoglu, a foreign-exchange and interest-rate strategist at Akbank in Istanbul, said yesterday by e-mail. “It would provide very limited advantage in terms of the current-account deficit’s sustainability and the short-term financing needs of the economy.”

Foreign Capital

The deficit reached a record 10 percent of gross domestic product in 2011. Morgan Stanley last year ranked Turkey among the so-called Fragile Five nations that are most vulnerable to a withdrawal of foreign capital.
Foreigners sold a net $246 million of Turkish bonds in the seven days ended Sept. 26, taking the four-week total to $871 million, according to Central Bank of Turkey data compiled by Bloomberg. Overseas investors rid themselves of $256 million of equities in the same period.
The effect of the oil-price decline won’t been seen in the current-account data until the fourth quarter, said Demetrios Efstathiou, the head of central and eastern Europe, Middle East and Africa strategy at Standard Bank Plc in London.
“The current-account deficit could shrink by as much as 1 percentage point, say from 6 percent to 5 percent,” he said.

Oil Drop

Oil has plunged 24 percent from this year’s peak in June amid a slowdown in demand growth and expansion of output in the U.S., Russia and other producers. Turkey’s import costs will drop by about 2.2 percentage points due to the decline in oil prices, Societe Generale SA estimates.
The lira depreciated 5.9 percent this year, touching a record-low 2.39 per dollar on Jan. 27 and forcing central bank Governor Erdem Basci to more than double the one-week repurchase rate, its main policy tool, to 10 percent. It has since been lowered to 8.25 percent, even as inflation stayed above the benchmark rate since May.
Two-year government note yields fell four basis points to 9.35 percent today after reaching a five-month high of 9.98 percent on Sept. 30. The lira weakened 0.6 percent to $2.2820 per dollar at 11:59 a.m. in Istanbul.

Exports Slide

Turkish exports slid 14 percent in August, turning this year’s 7.8 percent gain into a 7.8 percent decline, according to the national statistics office.
Exports to Iraq, the second-largest destination for Turkish goods, dropped to $647 million in August from $1 billion in January, data from the Finance Ministry show. Sales to Germany, the biggest trading partner, slid 9 percent to $1.14 billion in the same period.
The euro-region economy stalled in the second quarter from the previous three months and grew just 0.7 percent from a year earlier. Islamic State militants have defied U.S.-led air strikes to stage attacks across Iraq in recent weeks.
“For Wednesday’s trade-data release, oil-price movements will be less important than the slowdown in exports to the Middle East, especially Iraq, and Europe, where demand has been weakening,” Philippe Dauba-Pantanacce, a London-based senior economist at Standard Chartered Plc, said yesterday by e-mail. “Europe has been driving net-export growth in recent GDP figures, but this support could weaken in the upcoming data.”