Turkey: Current account deficit finally narrows in June but remains elevated
August 10, 2018
The current account balance recorded a USD 3.0 billion deficit in June, USD 0.8 billion smaller than the deficit recorded in June 2017. June’s figure was also smaller than May’s revised USD 6.2 billion deficit (previously reported: USD 5.9 billion deficit). Consequently, the 12-month trailing current account deficit ticked down slightly to USD 57.4 billion in June from May’s USD 58.2 billion shortfall.
In June, the smaller current account deficit in annual terms was spurred by a lower deficit in goods, which dipped from USD 4.6 billion in June 2017 to USD 4.4 billion in June this year. This is the first time in 2018 that the deficit in goods has narrowed year-on-year, likely on ebbing domestic demand and the weaker lira. In addition, the trade surplus in services broadened by USD 0.7 billion to USD 2.4 billion on greater inflows from travel services, as tourism continues to recover from the significant damage suffered in the aftermath of the 2016 failed coup attempt. The depreciation of the currency has also boosted the affordability of Turkey as a travel destination.
On the financing front, there was a sizeable net outflow of portfolio and other investment, likely driven in part by tighter U.S. monetary policy and instability in financial markets, amid rising concerns over the direction of Turkish economic policy. As a result, despite the smaller current account deficit, official reserves recorded a net outflow of USD 7.0 billion.