Turkey: Current account balance swings into deficit in July compared to a year prior
September 11, 2020
The current account balance swung to a USD 1.8 billion deficit in July from a USD 2.0 billion surplus in July 2019 (June 2020: USD 2.9 billion deficit). As a consequence, Turkey recorded the eighth consecutive monthly shortfall as the country’s external sector deteriorated at the hands of Covid-19 and associated containment measures. Moreover, in the 12 months ending in July, the current account deficit widened to 19-month low of USD 14.9 billion, worsening from the USD 11.1 billion shortfall in June.
The deterioration in July came on the back of a markedly narrower services trade surplus as the tourism sector remained in a tough spot despite the reopening of borders: In July, tourist arrivals were down 85.9% year-on-year. Meanwhile, the merchandise trade deficit narrowed as imports and exports both swung from expansion to contraction in July, with exports falling 7.7% year-on-year (June: +10.9% year-on-year) and imports shrinking 9.0% yoy (June: +6.8% yoy). The contraction in imports likely reflected frail domestic demand and the pass-through effects of a weakened lira.
On the financial front, there was a net inflow of USD 3.7 billion in July, up from the net inflow of USD 1.9 billion in the same month a year prior and swinging from the net outflow of USD 6.7 billion in June 2020. The print reflected currency and deposit inflows due to debt creation. Lastly, official reserves decreased by USD 1.3 billion in July, likely in part due to continued Central Bank intervention to prevent the lira from sliding further and also reflective of financing needs resulting from the current account deficit.
Commenting on the data, Muhammet Mercan, chief economist at ING Turkey, stated:
“The preliminary August trade data shows another large widening in the deficit due to relatively weak exports and record-high gold imports indicating a continuation of pressure in external balances, though the pace of expansion should lose some momentum in the remainder of the year.”
Author: Jan Lammersen, Economist