Turkey: Current account deficit narrows in February
April 11, 2019
The current account deficit widened slightly to USD 718 million in February from a revised USD 589 million in January (previously reported: USD 810 million deficit); however, the print is down markedly from the USD 3.8 billion deficit recorded in February 2018. The current account deficit has improved greatly in part due to collapsing domestic demand and a weak currency supporting price competitiveness since last year’s currency crisis.
February’s result chiefly reflected a narrowing of the trade deficit in goods, as the trade surplus in services shrank due to softer tourist inflows. In terms of goods, export growth moderated markedly year-on-year despite the marked depreciation of the lira over the same time period. Imports, meanwhile, continued to drop at a steep rate as domestic demand remains depressed due to high inflation and unemployment combined with pessimistic consumer sentiment.
On the financing front, net inflows in February totaled USD 2.1 billion on the back of foreign direct investment inflows; external borrowing by the government and banks; and ongoing debt repayments in the private sector. Foreign exchange reserves eased to USD 2.8 billion in February.
Commenting on the February data, Muhammet Mercan, chief economist at ING Turkey, noted that “the data shows a significant rebalancing in recent months and we expect this trend to continue, albeit at a slower pace. […]. Going forward, we expect external financing requirements to remain elevated given the hefty external debt repayment schedule. This means that Turkey will remain sensitive to shifts in global risk appetite.”
Turkey Current Account Balance Forecast
Turkey is expected to record a current account deficit of 1.8% of GDP in 2019, according to FocusEconomics Consensus Forecast panelists; this would be the smallest deficit in over a decade and largely thanks to a weak lira depressing domestic demand and supporting exports and tourist arrivals. Next year, FocusEconomics panelists see the current account deficit widening to 2.7% of GDP.
Author: Jan Lammersen, Economist