Turkey: Current account deficit widens in February
Turkey’s current account deficit widened to USD 5.2 billion in February from a USD 2.4 billion shortfall in February 2021 (January 2022: USD 7.0 billion deficit). Consequently, the 12-month rolling current account balance registered a USD 21.8 billion shortfall (February 2021: USD -36.9 billion; January 2022: USD -19.1 billion).
The annual deterioration came on the back of a notably wider merchandise trade deficit compared to the same month a year prior. Goods exports rose 26.8% year on year in February, up from January’s 20.3% increase. Merchandise imports, meanwhile, grew an annual 45.3% in February, which was down from January’s 56.5% expansion. Rising energy prices weighed on the import bill. Consequently, the merchandise trade deficit rose to USD 6.0 billion in February from USD 2.1 billion in the same month a year prior (January: USD -8.3 billion). The headline deterioration was limited by a surge in services exports, which drove a marked increase in the services trade surplus (February 2022: USD 1.6 billion surplus; February 2021: USD 0.7 billion surplus) amid strong tourist inflows. Tourist arrivals jumped over 186.0% year on year.
On the financial front, there was a net inflow of USD 3.4 billion (January 2022: USD 7.5 billion net inflow; February 2021: USD 1.6 billion net inflow). This came on the back of debt-creating non-resident inflows. On the other hand, residents increased their assets abroad. Lastly, official reserves dropped by USD 2.2 billion.
The Turkish current account deficit is forecast to widen this year due to the fallout from the war in Ukraine and subsequent sanctions on Russia. Turkey is a net importer of oil and gas, and the war has seen energy commodity prices jump, which will increase the import bill. In addition, the military conflict will weigh on Turkey’s tourism sector as arrivals from Russia nosedive: Russian tourists accounted for roughly a fifth of all arrivals in 2021.
Muhammet Mercan, chief Turkey economist at ING, added:
“As oil prices are expected to remain elevated, we expect the current account deficit to widen further in the near term. The outlook for the whole year will be determined by tourism revenues and the risk of oil prices remaining higher for longer, given escalating geopolitical risks. However, a slowdown in economic activity leading to weaker core imports can be a limiting factor. On the financing side, registered flows that have been quite weak in recent months hint at challenges in the capital account going forward in a less supportive global backdrop.”