Turkey: Current account deficit widens in December
The current account posted a USD 3.8 billion deficit in December, deteriorating from a USD 2.8 billion shortfall in November (December 2020: USD 3.4 billion deficit). Meanwhile, the 12-month trailing current account balance recorded a USD 14.9 billion deficit in December (November 2021: USD 14.5 billion deficit; December 2020: USD 35.5 billion shortfall).
The annual deterioration in December came on the back of a wider goods trade deficit. Merchandise exports soared 27.6% year-on-year in December, following November’s 36.1% upturn. Meanwhile, merchandise imports climbed 31.0% over the same month last year in December (November: +27.7% yoy), marking the quickest growth since June 2021. As a result, the merchandise trade balance deteriorated from the same month a year prior, recording a USD 5.0 billion deficit in December (December 2020: USD 3.4 billion shortfall; November 2021: USD 3.6 billion deficit). Meanwhile, the services trade balance rose from a USD 0.6 billion surplus in December 2020 to a USD 1.7 billion surplus in December 2021. Tourist arrivals jumped 170.6% year-on-year in the month, swinging from the 67.4% contraction recorded in the same month a year prior (November 2021: +111.5% yoy).
On the financial front, there was a net outflow of USD 1.2 billion in December 2021, swinging from the USD 9.6 billion net inflow recorded in December 2020 (November 2021: USD 1.1 billion inflow). The outflows in December were driven by marked portfolio outflows on the back of non-residents’ sale of equity securities, while Turkish banks increased their currency and deposits within their foreign counterparts. Lastly, official reserves dropped by a sizable USD 13.8 billion, likely influenced by deposits moving out of the country due to significant currency volatility in December.
Last year, Turkey’s current account deficit narrowed, in part thanks to a recovering tourism industry. While the country’s current account shortfall is expected to narrow further this year amid the ongoing global economic recovery and return of tourism, risks are skewed to the downside.
Murat Unur and Clemens Grafe, economists at Goldman Sachs, added:
“It is […] worth noting that although net errors and omissions have been one of the largest sources of financing this year, a reversal of these flows can create pressures on the balance of payments, as has been the case in the past. […] Going forward, we expect only a limited improvement to a deficit of 1.5% of GDP in 2022. We factor in a strong recovery in the tourism sector but expect this to be fully offset by a higher energy bill and only a minor improvement in the core goods trade balance. Finally, the preliminary merchandise trade data shows a significant deterioration for January and a current account deficit around USD 8–9 billion is likely.”