Turkey: Current account deficit narrows in June
The current account deficit narrowed in June to USD 3.5 billion from USD 6.6 billion in May (June 2021: USD -1.2 billion). In the 12 months ending in June, the current account recorded a shortfall of 32.7 billion. This was a larger deficit than May’s USD 30.4 billion and marked the largest shortfall on a 12-month rolling basis since March 2021.
The narrowing headline deficit came on the back of a smaller merchandise trade deficit of USD 6.4 billion in the month, compared to May’s USD 8.9 billion gap (June 2021: USD -1.6 billion). Goods exports expanded 18.9% year on year in June, up from May’s 15.4%. Meanwhile, goods import growth decelerated from 42.9% in May to 40.1% in June. The trade deficit continued to be driven by a greater energy import bill: Excluding gold and energy, trade data showed a notable surplus of USD 4.3 billion. Meanwhile, services trade remained a positive on the back of a strong tourism sector. Tourist arrivals jumped nearly 120% year on year in June.
On the financial front, there was a net outflow of USD 2.5 billion in June (May 2022: USD 2.4 billion net outflow; June 2021: USD 6.7 billion net inflow), as non-residents sold off Turkish equity and debt, while residents increased their foreign currency deposits. Moreover, Turkish banks increased their currency and deposits within their foreign counterparts. Lastly, official reserves fell by USD 2.0 billion in June (May 2022: USD -5.9 billion; June 2021: USD +8.8 billion).
The current account deficit is forecast to increase this year on the back of the fallout of the war in Ukraine. The war has pushed up energy prices and thus Turkey’s import bill, as it is a net importer of oil and gas. The lira’s volatility remains a downside risk.
Clemens Grafe, analyst at Goldman Sachs, commented:
“Going forward, we think export growth is likely to remain more limited, with demand from the EU (accounting for around 40% of exports) especially weaker, as the economies of Turkey’s major trading partners in the West are slowing down. While we do believe that tourism income will continue to rise substantially, we think the underlying balance net of tourism will deteriorate further on current trends. Given this, for 2022 as a whole we forecast a current account deficit of 4.7% of GDP with risks to the upside. In line with our expectations, corporates, facing high borrowing costs abroad, lowered their external debt rollover rate (on a 6-month basis) from 152.3% in May to 125.1% in June, and we expect this trend to continue going forward. Hence, in our opinion Turkey will need to attract additional foreign investment to be able to finance its growing deficit without achieving significant tightening.”