Turkey’s current account deficit continues to contract in May on lower commodity import prices

Turkish data of May released on Thursday turned out to be strong. Turkey’s current-account balance for the month of May continued to shrink on trend. The country recorded a current account deficit of USD 2.8 billion.  The annualized deficit is currently narrower than 4 percent of the GDP. This is supportive of the Turkish lira.

Meanwhile, the country also released May’s manufacturing data. The data came out strong with the output expanding 1.6 percent on sequential basis, reversing the declines in the earlier two months that cumulated to a contraction of 1.5 percent. This rebound is likely to continue through the third quarter at least in light of the subsiding tensions with Russia and Israel, noted Commerzbank in a research report.

“Nevertheless, it is best not to get carried away by remarks which immediately followed from Turkish policymakers, claiming that a strong industrial recovery had begun”, added Commerzbank.

Lower commodity import prices are mainly driving the improvement in Turkey’s current account balance. Excluding energy, the current account is flat. Moreover, the industrial output figure for the month of May makes up for many weak months. The underlying trend of growth rate of manufacturing in the last 12 months comes around to 3.6 percent. Meanwhile, for 2016 year-to-date, manufacturing works out to just 1.8 percent, said Commerzbank.

“We forecast 3.5 percent GDP growth this year, with slight risk to the upside if regional tension fully eases off in one go. But still, there is no reason for hyperbole,” stated Commerzbank.