Turkey: Current account deficit widens in January, Central Bank updates its methodology
Turkey’s current account deficit widened notably from USD 0.3 billion in January 2019 to USD 1.8 billion in January of this year (December 2019: USD -2.2 billion; previously reported USD -2.8 billion), marking the second consecutive monthly shortfall. Consequently, the 12-month rolling sum of the current account narrowed from a USD 8.0 billion surplus in December to USD 6.5 billion in January—the smallest surplus in eight months. It should be noted that the Central Bank revised its methodology for calculating the current account; the new methodology estimates higher services exports and consequently means a stronger current account position. The current account surplus last year has been revised up to 1.1% of GDP (previously reported: 0.2% of GDP).
The wider deficit in January came on the back of a larger merchandise trade shortfall. Merchandise imports grew at a rapid pace (January 2020: 19.0% year-on-year; January 2019: -27.7% yoy) in the wake of stronger domestic demand, partly due to the government’s focus on achieving high growth rates. Merchandise export growth accelerated (January 2020: 6.5% yoy; January 2019: 5.3% yoy), boosted by the currency depreciation making Turkish exports cheaper.
On the financial front, there was a net outflow of USD 1.7 billion, contrasting the USD 5.5 billion inflow recorded in the same month a year prior (December 2019: USD 0.5 billion inflow). This came on the back of banks scaling up their portfolio assets held abroad and reduced their loan liabilities, and outflows from government domestic debt. Lastly, official reserves dropped by USD 2.9 billion.
Going forward, Turkey is expected to return to a current account deficit over this year as a whole as the return of domestic demand should lift import growth, weighing on the trade balance and the current account. Exports, meanwhile, are expected to face headwinds amid global trade tensions and the outbreak of the coronavirus.