Turkey: Current account deficit moderates in November
The current account posted a USD 2.7 billion deficit in November, swinging from the USD 3.1 billion surplus recorded in October (November 2020: USD 3.6 billion deficit). Meanwhile, in the 12 months leading up to November, the current account clocked a USD 14.3 billion deficit, following a USD 15.1 billion deficit in October.
The annual improvement came on the back of a smaller merchandise trade deficit and a larger services trade surplus. Merchandise exports jumped 36.8% year-on-year in November, on the heels of October’s 20.8% upturn. Meanwhile, merchandise imports shot up 27.7% on an annual basis in November (October: +12.0% yoy), marking the best result since June 2021. As a result, the merchandise trade balance deteriorated from the previous month, recording a USD 3.5 billion shortfall in November (October 2021: USD 0.1 billion surplus; November 2020: USD 3.9 billion deficit). Looking at services trade, exports rose strongly on the back of the continued recovery in tourism: Tourist arrivals jumped 111.5% year-on-year in November, with the cheap currency likely supporting arrivals.
On the financial front, Turkey recorded a net inflow of USD 1.1 billion in November, swinging from the USD 4.9 billion outflow recorded in October and the USD 1.2 billion outflow logged in the same month a year prior. Inflows were buoyed by banks’ deposits and currency-related inflows, which offset external debt repayments by the government. Real estate acquisitions by foreigners also supported financial inflows. Lastly, reserves increased by USD 2.8 billion in the month.
Turkey’s external position has strengthened in recent months despite November’s deficit, which was expected by market analysts. The improvement has been supported by the easing of restrictions and the recovery in tourism. Renewed currency volatility, however, poses both a limited upside and a greater downside risk for Turkey’s current account in the new year.
Murat Unur and Clemens Grafe, analysts at Goldman Sachs, commented:
“The recent sell-off in the lira is pronounced and likely to lead domestic demand (hence imports) to follow a weaker course, implying a narrower current account deficit and potentially a surplus in 2022. […] Nevertheless, we think there are several reasons to be cautious regarding how fast the current account balance can improve: (1) With a high share of goods trade invoiced in foreign currency and a high share of intermediate good imports, the competitiveness gains from a currency depreciation are likely to be limited. (2) The narrowing in the gold trade deficit was a key driver of the improvement in the current account balance in 2021. With gold trade close to balanced, it is not likely to be a source of improvement going forward. (3) Turkey had very loose monetary and liquidity policies in 2020 supporting domestic demand and hence imports, when exports were significantly hurt by lockdowns in Europe. The reversal of this and the recent push for growth, with the easing in monetary policy and the pickup in loan growth, are once again likely to weigh on the current account balance. Additionally, the recovery of tourism receipts we assume remains highly dependent on pandemic developments.”