Country Report Turkey January 2011

Economic performance: The trade and current-account deficits remain large

In October Turkey's current-account deficit was US$3.7bn, bringing the total for January-October to US$35.7bn, compared with just US$9.2bn a year earlier. The main reason for the rapid increase in 2010 has been the steady expansion of the merchandise trade deficit as imports have rebounded in line with the recovery in domestic demand, high global commodity prices and an appreciating lira (up to early November), whereas export growth has been tempered by weak European demand, among other factors. In January-October the merchandise trade deficit amounted to US$42.7bn, with the value of imports up by 30.5% year on year, to US$141.2bn, while exports rose by 10.2% in value, to US$98.5bn. Among the other components of the current account, the services surplus in January-October was only US$12.3bn, compared with US$15bn a year earlier. The decline reflects lower tourism revenue, higher foreign tourism spending by Turkish citizens, and a decline in net income from transport and overseas contracting services. The deficit on the income account, which comprises mainly profits and interest earnings repatriated by foreign investors, was slightly lower than in the same period of 2009.

In October capital inflows, headed by foreign investment in the Turkish stock and bond markets and net foreign borrowing by Turkish banks, were sufficient to finance the current-account deficit and enable the Central Bank to go on adding to its foreign-exchange reserves. Net capital inflows (exclusive of official reserves) totalled US$43.8bn in the first ten months of 2010, reflecting ample global liquidity and positive sentiment towards emerging markets.

Balance of payments
(US$ m unless otherwise indicated)
Current-account balance-41,946-14,283-9,199-35,723
 Foreign trade balance-53,021-24,893-18,819-42,660
 Services balance17,12116,43215,03712,291
 Income balance-8,159-8,121-6,950-6,461
 Current transfers balance2,1132,2991,5331,107
Capital account excluding reserves35,2489,8504,52743,830
 Change in reserve assetsa1,057-111642-9,403
 Net errors & omissions5,6414,5444,0301,296
a Negative indicates an increase.
Source: Central Bank of Turkey.

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By the first week of November, official gross foreign-exchange reserves had reached US$80.3bn, compared with US$70.7bn at end-2009, according to weekly data from the Central Bank. The reserves went on to hover at about the same level in the rest of November and early December. As of December 10th, gross foreign-exchange reserves were put at US$79.7bn.

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