Turkey: Current account deficit widens further in May, triggers market jitters
July 11, 2018
The current account balance recorded a USD 5.9 billion deficit in May, USD 0.5 billion larger than the deficit recorded in May 2017. May’s figure was also greater than April’s USD 5.5 billion deficit and overshot market expectations. Consequently, the 12-month trailing current account deficit widened to USD 57.6 billion in May—the largest deficit in over four years—and greater than April’s USD 57.1 billion shortfall.
As was the case in the prior month, May’s widening current account imbalance was spurred by a much larger trade deficit in goods, which reached a whopping USD 6.5 billion on surging domestic demand. In USD terms, goods imports increased 7.0% year-on-year in May, while goods exports expanded 5.1%. The larger trade deficit in goods was partially compensated by a greater trade surplus in services, which increased to USD 1.9 billion in May from USD 1.1 billion in May 2017. This was driven by a substantial net inflow from travel services, as the sector continues to recover from the significant damage suffered in the aftermath of the 2016 failed coup attempt.
May’s balance of payments figures went down badly with markets, particularly coming so soon after President Erdogan picked his son-in-law as the new treasury and finance minister, and simultaneously sidelined respected former cabinet members such as Mehmet Semsek and Naci Agbal. The lira slid, bond yields spiked and the Istanbul stock market tumbled, as fears of a dangerous overheating of the economy continue to mount.