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  • Emerging Markets Debt Daily

    Turkey Current Account – Turning the Corner?

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    December 10, 2020

    Turkey’s current account showed a visible improvement in October. Mexico’s industrial production ended the year on a high(er) note.

    Turkey’s current account deficit is still large on a 12-month basis (4.6% of GDP), but there was a visible sequential improvement in October (a deficit of USD270M, see chart below). Does this mean Turkey’s external balance is finally turning the corner? Higher interest rates and the weaker currency should cap non-gold imports, while tourism should get a boost from the global vaccine rollouts. This is the main reason why the consensus sees the current account deficit narrowing from 4-5% of GDP in 2020 to around 3% in 2021. The Turkish lira rallied in the morning trade, as a reflection these expectations.

    Mexico’s industrial production beat consensus in October, rising by 2% month-on-month in seasonally-adjusted terms. The upside surprise ends the year on a positive note. It should reduce pressure on the government to provide additional near-term stimulus, allowing it to focus on longer-lasting infrastructure programs.

    Chinese authorities tweaked a key macro-prudential parameter this morning in order to discourage companies from borrowing abroad. The cross-border financing parameter was cut from 1.25 to 1.00, reducing the upper limit of outstanding cross-border financing. The move reverses the March increase, showing awareness of higher leverage, but also signaling comfort with the exchange rate outlook.

    Chart at a Glance: Turkey – Big Sequential Improvement in Current Account

    Chart at a Glance: Turkey – Big Sequential Improvement in Current Account

    Source: Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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