Goldman Sachs Revises Turkey Forecasts: Current Account Deficit to Reach $60 Billion

Goldman Sachs revised its year-end current account deficit forecast for Turkey, projecting a deficit of 3.5% of GDP, approximately $60 billion, despite a decline in the May deficit to $1.5 billion. This revision surpasses previous expectations of $1 billion.

Current Account Deficit Surpasses Expectations

■Turkey’s current account deficit fell from $5.6 billion in April to $1.5 billion in May.

■Seasonal tourism revenue increases and reduced energy and basic goods imports contributed to the improvement.

■June saw a $7 billion rise in goods imports, widening the total trade deficit to $4.5 billion.

■Limited trade deficit narrowing in Q2, but a widening current account deficit is anticipated by year-end.

Financial Account Outflows and Portfolio Dynamics

■Financial account recorded an outflow of $1.8 billion in May.

■A $3 billion net portfolio outflow was offset by $1.8 billion in other investment inflows to banks.

■Reserves declined by $3.3 billion due to payment balance pressures from the current account deficit.

TCMB Reserves and Forex Purchase Strategies

■TCMB reserves reached $169 billion as of July 10.

■Half of the reserve increase stemmed from foreign currency deposits held by banks under mandatory reserve requirements; the rest from direct forex purchases.

■Gross forex assets were $47 billion lower compared to February; net of gold valuation, the gap narrowed to $19 billion.

Credit Growth Slowdown and Liquidity Conditions

■Turkish lira credit growth fell to 36% annually; forex credit growth declined to 4%.

■Weighted total credit expansion stood at 28% annually, 6 percentage points below January levels.

■TCMB’s total funding to banks was negative -494 billion TL, indicating excess liquidity in the banking system.

Dr. Aslıhan Demir’s Analysis: While Goldman Sachs’s revised current account deficit forecasts highlight external imbalances, reserve accumulation and liquidity structure underscore TCMB’s reliance on forex inflows. Credit growth deceleration raises questions about the efficacy of interest rate policies. Markets now face heightened risks around interest and forex policy trajectories.