Turkey: Current account deficit continues to expand in April on strong domestic demand
June 11, 2018
The current account balance recorded a USD 5.4 billion deficit in April, USD 1.7 billion larger than the deficit recorded in April 2017. April’s figure was also greater than March’s USD 4.8 billion deficit and overshot market expectations. Consequently, the 12-month trailing current account deficit widened to USD 57.1 billion in April—the largest deficit in over four years—and greater than March’s USD 55.4 billion shortfall.
The widening current account imbalance was spurred by a much larger trade deficit in goods, which reached a whopping USD 5.5 billion in April. This is a result of surging imports due to red-hot domestic demand, with export growth unable to keep pace. Imports increased 16.2% year-on-year in April, while exports expanded 7.1%. Meanwhile, the trade surplus in the services sector increased to USD 1.5 billion in April, USD 0.38 billion higher than in April 2017. This was driven by a substantial net inflow from the travel services sector, likely on higher tourist numbers as the tourism sector continues to recover from the significant damage suffered in the aftermath of the 2016 failed coup attempt.
April’s balance of payments figures raise further concerns about an overheating economy and the country’s vulnerability to a drying-up of the short-term capital flows currently being used to plug the current account deficit. As a result, the lira resumed its depreciation trend on the news, following a brief period of stability in the FX market after the Central Bank tightened its monetary stance on 7 June.