Turkey: Current account deficit narrows slightly in January
Turkey’s current account deficit narrowed slightly to USD 1.9 billion in January from USD 2.0 billion in the same month a year prior (December 2020: USD -3.2 billion). However, the print came in higher than market expectations of a USD 1.7 billion shortfall and marked the 15th consecutive month of a deficit as lingering lira weakness and the impact of the global health crisis continued to weigh on the country’s external position. Meanwhile, the current account deficit decreased fractionally to USD 36.6 billion on a 12-month rolling basis at the start of the new year (December 2020: USD -36.7 billion).
The improvement in the headline reading reflected a markedly smaller merchandise trade deficit as goods imports fell 7.9% year-on-year in January (December 2020: +10.5% yoy), notably outpacing the marginal 0.2% year-on-year drop in exports (December 2020: +15.1% yoy). On the other hand, a notably smaller services trade surplus weighed on the headline reading: The tourism sector continued to feel the pinch from the Covid-19 crisis, with arrivals down over 70% in January compared to the same month in the previous year—the strongest fall since August 2020—amid renewed travel restrictions abroad.
On the financial front, there was a net inflow of USD 1.6 billion in January, swinging from the USD 2.1 billion net outflow recorded in January 2020 (December 2020: USD 8.9 billion net inflow) and likely supported by the lira rally in the opening stretch of the year. The net inflow reflected strong portfolio investments amid non-residents obtaining local equity and debt, as well as bonds. Furthermore, domestic bank deposits of non-residents expanded. On the other hand, local banks increased their currency and deposits within their foreign counterparts. Lastly, official reserves rose by USD 3.6 billion.