Turkey's October Trade Deficit $8bn, Below Forecast

Ash said the reduced export growth suggested Turkey was beginning to feel the heat from Europe's economic slowdown, though its experts were more diversified, compared to the rest of Emerging Europe.

The trade deficit is the main factor behind a Turkish current account deficit that the International Monetary Fund expects to stand at 10.5 percent of GDP by the end of 2011.

In December last year, the central bank adopted a strategy of lower interest rates to deter "hot money" inflows, and higher reserve requirement ratios to curb loan growth.

It has said this would rein in the current account deficit from the fourth quarter.

The central bank strategy has been widely criticised by analysts who fear it is letting inflationary pressure build up.

Last month the bank started monetary tightening in order to stop further lira depreciation.

At its monthly meeting on Oct. 20, the bank left its policy rate unchanged but raised its overnight lending rate as it sought to prevent significantly higher inflation hitting the medium-term outlook.

On a seasonally and calender adjusted basis, Turkish imports declined 5.4 percent to $19.81 billion while exports rose 2.2 percent to $11.16 billion.

"In order to smooth out the factors, one needs to look at the moving average seasonally adjusted data. When we do that, we see that the deficit has fallen to $8.6 billion, about 7 percent lower than where it was in summer, implying that a correction in external balances is already underway," wrote Yarkin Cebeci, economist at JP Morgan.

"We expect investor confidence to improve as the adjustment in the current account deficit becomes evident. However, even after this adjustment, the current account deficit will remain wide and Turkey will remain dependent on capital inflows to finance this deficit, meaning that the country will remain vulnerable to shifts in global risk appetite and in global liquidity conditions," he added.

Copyright Reuters, 2011