Turkey: Current account deficit narrows for second straight month in July on weaker currency and softer domestic demand
The current account balance recorded a USD 1.8 billion deficit in July, which is USD 3.0 billion smaller than the deficit recorded in July 2017. Consequently, the 12-month trailing current account deficit fell to USD 54.6 billion in July from June’s USD 57.5 billion shortfall. After widening in annual terms for a prolonged period, the trend reversal in June and July is a result of the marked currency depreciation since the start of the year and a weaker domestic economy.
In July, the smaller current account deficit in annual terms was spurred by a lower deficit in goods, which dipped from USD 7.3 billion in July 2017 to USD 4.8 billion in July this year. In addition, the trade surplus in services broadened by USD 0.7 billion to USD 3.6 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. In addition, the depreciation of the currency has also boosted the affordability of Turkey as a travel destination.
On the financing front, there were USD 1.2 billion of net capital inflows in July, due to a brief period of market stability following the general elections in June and before August’s currency crash. Net inflows of FDI and foreign banks’ deposits were partially offset by a continuing outflow of portfolio investment.
Going forward, given further currency depreciation in August and signs of a rapid cooling in domestic activity, the current account deficit should continue to narrow going forward.