Turkey: Current account deficit widens in February
Turkey’s current account deficit widened to USD 2.6 billion in February from USD 1.4 billion in the same month a year prior (January 2021: USD -1.8 billion). The headline print came in below market expectations of a USD 2.3 billion shortfall, weighed on by a pickup in domestic activity and a weakening currency. Moreover, in the 12 months ending in February, the current account recorded a USD 37.8 billion deficit (January 2021: USD -36.6 billion), which marked the worst result since September 2018.
The annual deterioration came on the back of a smaller services trade surplus as the tourism sector remained downbeat amid the lingering impact of Covid-19 restrictions: Tourist arrivals were down nearly 70% in February. In addition, a wider merchandise trade shortfall further weighed on the headline reading. Exports of goods rose 15.9% year-on-year in February (January 2021: +14.8% yoy) but were outpaced by an 18.0% increase in merchandise imports as domestic demand continued to recover from the blow dealt by the pandemic.
On the financial front, there was a net inflow of USD 1.7 billion in February, down from the USD 3.0 billion net inflow recorded in the same month a year prior (January 2021: USD 1.9 billion net inflow). A reduction in banks’ foreign currency assets abroad and real estate-related inflows supported the reading. On the other hand, banks’ repayment of external debt and non-resident equity outflows weighed on the financial account. Lastly, official reserves rose by USD 925 million.
Muhammet Mercan, chief Turkey economist at ING, commented:
“Overall, February data confirms the challenging flow outlook for Turkey, while reversal in portfolio inflows following recent domestic events should further weigh on the financial account. Going forward, real estate related inflows, government borrowing and level of corporate rollovers should help ease pressures. On the current account, core imports which are closely associated with domestic demand can show some correction this year depending on the continuation of tight credit policy and demand control while the evolution of gold imports will also be key for the external balances. In our view, risks are skewed towards a narrowing external deficit with challenging external financing conditions.”