TODAY’S ZAMAN – CAD widens further in June, pulling lira down

CAD widens further in June, pulling lira downTurkey’s current account deficit (CAD) increased more than expected in June, reaching $4.09 billion, official data revealed on Thursday.

 The CAD, Turkey’s main economic weakness, which had been narrowing, jumped to $4.093 billion in June, wider than a market forecast of $3.

7 billion and higher than May’s reading of $3.50 billion.

 In the first six months of the year, the CAD was $24.151 billion, down from $37.

085 billion in the January-June period of 2013. Economists had earlier estimated the current account gap would narrow to 6 percent of the gross domestic product (GDP) in 2014 from 8 percent a year ago.

 Turkey’s current account gap was $65.06 billion in 2013, a level that leaves its economy highly susceptible to changes in global liquidity conditions.

Narrowing the deficit has been one of the main targets of Turkish policy makers. “Today’s results show that recent geopolitical tensions have started to weigh on the improvement in the current account deficit,” said Muammer KmurcuoIlu, economist at II Investment.

 “As the civil war in Iraq shows no sign of de-escalation, and leading indicators in Europe continue to point to a weaker recovery in the eurozone, we believe that the pace of the rebalancing is set to lose further momentum in the following months,” he said in a note to clients. The chaos in Iraq, which had grown to be Turkey’s second-biggest export market, and the sluggishness of economic recovery in Europe are weighing on hopes that stronger export growth can help Turkey to narrow its trade gap, and in turn the CAD.

Germany’s economy shrank in the second quarter and France again failed to conjure up any growth, snuffing out any signs of a recovery in the eurozone, which is now also weighed down by tit-for-tat sanctions with Russia Lira, CAD weaken case for rate cuts The Turkish lira weakened on Thursday after data showed the CAD had widened in June, while chaos in Iraq and concern over the pace of European recovery offered little hope that the underlying trade gap would narrow. The lira was trading at 21615 to the dollar by Thursday morning against 21545 late on Wednesday, having weakened as far as 21635 after the current account data was announced.

One US dollar was traded at TL 2154 on Thursday afternoon. Observers also cited a gloom in Turkey’s export markets, including a slump in sales to Iraq — and fears of problems in trade with Ebola-hit Western Africa put further pressure on the Turkish lira Main share index Borsa Istanbul (BIST) increased 039 percent to 77,392 points.

The two-year and 10-year government bond yields were broadly flat at around the 934 percent level. Meanwhile, economists said the latest Turkish data, combined with stubbornly high inflation, could weigh against deeper interest rate cuts, although Prime Minister Recep Tayyip ErdoIan and some of his Cabinet have repeatedly urged the central bank to lower borrowing costs.

 Turkish media quoted DurmuI YIlmaz, economic aisor to outgoing President Abdullah Gul and former central bank governor, as saying on Thursday that further rates cuts would hamper markets. “Let them [government] force a cut in rates and see what happens in the economy after three months,” YIlmaz said.

He is expected to leave his post as aisor to the president once Gul is replaced by President-elect ErdoIan on Aug. 28.

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SOURCE: Today’s Zaman