WOOD Flash – Turkey macro: downgrading our Current Account projections

We have downgraded our Current Account (CA) projections meaningfully on the back of the latest trade, tourism and data from the NEP (New Economic Program). The balance of payment release for July and August revealed improvements in funding, particularly from the “other investment segment” which reflects an improvement in the rollover of external liabilities, especially relative to the sizeable outflows seen a year earlier. These changes are not, however, enough to offset a worsening of our assessment of the CA deficit in the coming twelve months, which should continue to suffer from the consequences of the global COVID pandemic. We downgrade our CA projections to -5.5% in 2020E and -4.2% in 2021E. A more favourable scenario of a -3.0% of GDP in 2021E is plausible, but is linked to the global COVID developments impacting global trade and tourism, and also the renegotiation of positive natural gas contracts.
Our forecast revision reinforces our call for continuing TRY weakness in the coming year, although we flag that the very low positioning of non-resident institutional investors opens the door to short-lived appreciation spells. We also reinforce our call for a further 175bp of monetary tightening, which would be conducive to moderate household lending appetite, in our view, but does not signal a fundamental change in the pro-growth pro-brisk lending strategy by the central bank.