Turkey: Current account deficit widens in January
Turkey’s current account deficit rose to USD 7.1 billion in January, from USD 3.8 billion in December (January 2021: USD 1.8 billion deficit). Meanwhile, the 12-month trailing current account balance recorded a USD 20.2 billion shortfall in January (December 2021: USD 14.9 billion deficit; January 2021: USD 35.6 billion deficit).
The annual deterioration in January came on the back of a marked increase in the goods trade deficit. Merchandise exports grew 20.3% year-on-year, cooling from December’s 27.6% increase. Goods imports growth, meanwhile, accelerated to 56.4% year-on-year in the month (December 2021: +31.0% yoy). Stronger growth in the import of goods came on the back of a significant rise in energy imports, in part reflective of greater commodity prices. Consequently, the merchandise trade deficit stood at USD 8.3 billion in January (December 2021: USD 5.0 billion shortfall; January 2021: USD 1.9 billion deficit). A marked uptick in the services trade surplus, amid solid inflows of tourists, limited the headline deterioration; the services trade surplus rose to USD 1.6 billion in January from USD 0.7 billion a year prior (December 2021: USD 1.7 billion surplus).
On the financial front, there was a net inflow of USD 6.4 billion (January 2021: USD 4.3 billion net inflow; December 2021: USD 0.3 billion net inflow) on the back of a solid increase in resident inflows. Residents reduced their holdings of foreign assets, while Turkish banks lowered their financial assets held abroad. Lastly, official reserves dropped by USD 0.9 billion.
The Turkish current account deficit is expected to narrow this year amid the ongoing global recovery and related return of tourism. However, the recent escalation of geopolitical tensions into a full-blown war in Ukraine highlight that the balance of risks is skewed to the downside. Commodity prices have risen sharply in response to the Russian invasion, and this will weigh on Turkey’s current account balance as energy costs will remain elevated, particularly in the short-term.
Muhammet Mercan, chief economist for Turkey at ING, commented:
“Overall, the current account deficit that remained on a narrowing path last year has changed direction with a strong expansion in January driven by higher energy bills. As oil prices continue to rise, we expect the current account deficit to widen further in the near term. The outlook for the whole year will be determined by tourism revenues and the risk of oil prices remaining higher for longer given the ongoing conflict between Russia and Ukraine, while the slowdown in economic activity leading to weaker core imports can be a limiting factor.”
Murat Unur and Clemens Grafe, economists at Goldman Sachs, added:
“We forecast a current account deficit of 2.5% of GDP but see risks for a much wider figure. Our current account deficit forecast appears optimistic given the January BoP and the February merchandise trade balance data. There are two reasons for this. First, it incorporates our bearish lira views as we think that the pressure on the lira will continue and ultimately limit imports. Second, the uncertainty around the tourism outlook continues and, hence, we have made relatively measured adjustments so far.”