Turkey: Current account deficit widens in December
Turkey’s current account deficit widened markedly from USD 1.1 billion in December 2018 to USD 2.8 billion in December 2019 (November: USD -0.4 billion, previously reported: USD -0.5 billion). This marked the second consecutive monthly current account shortfall. On a 12-month rolling basis, the current account surplus narrowed from USD 3.4 billion in November to USD 1.7 billion in December. Consequently, Turkey recorded a current account surplus last year for the first time in just under two decades, as 2018’s currency crisis saw a marked reduction in external imbalances due to collapsing domestic demand and a weaker lira supporting exports.
The wider deficit in December came on the back of a significantly larger merchandise trade shortfall on the back of surging domestic demand driving strong import growth. Merchandise imports skyrocketed 18.7% year-on-year in December, swinging from the 27.8% contraction in the same month a year prior, while exports grew 6.1% year-on-year in December 2019, which was up from the tepid 0.4% increase in December 2018. Domestic demand is seemingly on the mend as the Turkish economy is slowly recovering from the body blow it received in 2018, aided by the government’s renewed focus on achieving high growth rates. The services trade surplus, meanwhile, rose somewhat in part due to tourism inflows, buttressed by the cheap lira.
On the financial front there was an outflow of USD 220 million in December, down from the USD 310 million outflow in the same month a year prior but swinging from the strong net inflow of USD 3.2 billion in November 2019. December’s outflow came partly on private-sector nonfinancial firms’ debt repayments. Lastly, official reserves dropped by USD 539 million in December.
This year, the current account balance should return to deficit. The return of domestic demand, which should lift import growth, is expected to widen the trade deficit and weigh on the current account.