Turkey: Current account deficit widens in October
In October, Turkey recorded a USD 0.2 billion current account deficit (November 2019: USD 2.8 billion surplus), which marked the 11th consecutive shortfall. On a 12-monht rolling basis, the current account deficit rose to USD 33.8 billion in October from USD 30.8 billion in September. October’s moving sum marked the steepest deficit since September 2018 and highlighted the deteriorating external position of the economy.
The annual deterioration in the current account balance reflected a markedly smaller services trade surplus amid the ongoing fallout from the global pandemic, and a wider merchandise trade deficit. The tourism sector has been hard hit by Covid-19 and restrictive measures to curb its spread; in October, tourist arrivals were down nearly 60% year-on-year and down more than 70% year-to-date. Meanwhile, strengthening domestic demand continued to drive the widening merchandise trade deficit, with imports expanding 7.0% year-on-year (September: +22.2% yoy), while exports rose 4.3% year-on-year (September: +3.3% yoy)—marking only the fourth month of growth this year due to the pandemic.
On the financial front, there was a net inflow of USD 2.9 billion in October, markedly up from the USD 0.6 billion net inflows recorded in the same month of the prior year (September 2020: USD 1.2 billion outflow). The print was driven by portfolio investment inflows. Lastly, official reserves rose by USD 4.2 billion in the month.
Looking ahead, Turkey is expected to record a notable current account deficit next year, while the risk of a balance of payments crisis rises due to continued currency depreciation amid a largely USD denominated private-sector debt stock. Moreover, the government has relied on credit growth to boost consumption and investment and combined with depleted reserves and a widening currency account deficit increases pressure on the balance of payments.