ISTANBUL (Reuters) - Violence in Iraq, Turkey's second-biggest export market, could hamper Turkey's efforts to narrow its current account deficit this year, although a recovery in Europe and a weaker lira will help, Finance Minister Mehmet Simsek said on Tuesday.
Turkey's current account gap, fuelled by its heavy dependence on imported goods and energy, is the main structural weakness in its economy. Narrowing the deficit has been a priority for both the finance ministry and the central bank.
"Unfortunately geopolitical tensions are risk factors this year," Simsek told a conference in Istanbul.
"Developments in Iraq will have a negative impact on the current account deficit. If not taken under control fast, the latest developments are unfortunate," he said.
A stronger European economy, moderate domestic demand, a weaker lira and lower gold imports would however help efforts to reduce the deficit, he said.
Simsek said earlier this month that Turkey's current account deficit, which stood at $11.46 billion in the first quarter, was at a manageable level and was set to narrow. Last year, Turkey's current-account gap was $65 billion.
Iraq has risen to become Turkey's second-biggest export market after Germany in recent years as Ankara sought to diversify its trade away from a dependence on Europe. Turkey exported $12 billion of goods to Iraq last year.
Islamist insurgents have routed Baghdad's army and seized the north of the country in the past week, threatening to dismember Iraq and unleash all-out sectarian war.
The bulk of Turkey's trade is with the autonomous Kurdish enclave in the north of the country, which for the moment has not been targeted by the insurgents. The government has set up a crisis centre to help track Turkish workers in Iraq but has said there are no plans for a full evacuation.
Simsek also repeated on Tuesday that he expects the economy to reach the government's 4 percent growth target this year and for inflation to start falling from this month.
(Reporting by Ebru Tuncay, Writing by Seda Sezer; Editing by Nick Tattersall)