Balances favor TL | Economic News

While Turkey goes to the polls for local elections on March 31, attempts are made to re-enact the game that exchange rates will rise under the guise of the market, but data and expectations suggest the opposite. The historical decline in the current account deficit, the anticipated narrowing in the foreign trade gap due to the decrease in natural gas use in the summer, a strong performance in tourism and the acceleration of resource inflow to emerging markets such as Turkey as the USA and Europe begin to reduce interest rates; It is one of the developments that will disrupt the negative exchange rate perception in the country, which is pumped in accordance with the ballot box.

EXPORT SPEED IS MAINTAINED

Turkey is implementing a new economic program in order to achieve its goals without being shaken in the face of internal and external shocks. While the steps taken towards the balanced growth target along with the normalization of monetary policy and increasing foreign inflow accelerated the decline in the current account deficit, the export tempo is maintained. With the impact of the revival in global economic activity, 2024 had a positive start in terms of exports. In January and February, exports increased by 8.5 percent compared to the same period last year. A noticeable decline in imports was noted. Imports decreased by 15.5 percent compared to the first two months of last year. Thus, the foreign trade deficit, which was 26.4 billion dollars in the first two months of 2023, decreased to 13.2 billion dollars. The ratio of exports to imports also increased from 58.9 percent to 75.6 percent.

CURRENT ACCOUNT DEFICIT IS AT THE LOWEST IN 17 MONTHS

Thanks to the improvement in the balance of payments, the current account deficit, which was 10.4 billion dollars in January 2023, decreased to 2.5 billion dollars in the same period of 2024. The annual current account deficit, which was 45.4 billion dollars at the end of 2023, decreased by 7.9 billion dollars and fell to 37.5 billion dollars, the lowest level in 17 months. The decrease in the use of natural gas, which is one of the items that cause Turkey to have a current account deficit, will also contribute to the narrowing of the foreign trade gap in the summer months.

TOURISM REVENUES WILL BE THE LIFEWATER

While it is foreseen that there will be a foreign exchange surplus in Turkey’s external payments balance, the tourism sector is expected to show a stronger performance in the new season. As a matter of fact, tourism revenues broke a record with 54.3 billion dollars in 2023, increasing by 16.9 percent compared to the previous year. The number of foreign visitors in the first two months of this year increased by 12 percent compared to the same period of the previous year, reaching 4 million 341 thousand people. Early bookings recorded so far appear to be 20 percent higher than last year. Turkey has a tourism income target of 60 billion dollars in the new season. This target will be a lifeline for the economy and will also relieve exchange rate pressure.

910 MILLION DOLLARS DIRECT INVESTMENT IN A MONTH

While the new economic management increases the interest in TL assets, the implemented disinflation program finds response in the international arena. It is estimated that foreign investor inflows will accelerate as faith in the program further strengthens. So much so that direct investments to Turkey increased by 20 percent in January, reaching 910 million dollars. Moody’s and Fitch changing Turkey’s credit rating outlook to “positive” will also enable foreigners to focus on TL assets in their portfolio preferences.

RISK PREMIUM WAS BELOW 300 POINTS

With the increase in predictability for the Turkish economy, the 5-year credit risk premium (CDS) began to decline and tested below 300 basis points for the first time since March 2021. As dollarization continued to decline, foreign inflows into stocks and bonds also supported the Central Bank’s net reserves. Total reserves have increased by $42.9 billion since May 2023, reaching an all-time peak of $141.4 billion. The reserves, which increased continuously for 8-9 months, reached 127.9 billion dollars in the week of March 15.

CAPITAL FLOW TO TURKEY WILL ACCELERATE

On the US and European side, interest rate cuts that will start from June will accelerate capital flows to developing countries such as Turkey. The recent foreign demand for newly issued bills and bonds also supports the scenarios that the dollar will lose value against TL in the near future. In addition to the positive outlook in macroeconomic indicators, the decline in inflation in the second half of the year will allow the permanent stability of the exchange rate to be further strengthened.