Turkey: Current account deficit widens on robust demand and strong gold imports
March 12, 2018
The current account balance recorded a USD 7.1 billion deficit in January, a much wider gap from the USD 2.2 billion shortfall recorded in January 2017 and the second-largest monthly deficit since December 2013. The figure was also slightly larger than the USD 7.0 billion shortfall that market analysts had expected but smaller than the USD 7.7 billion deficit recorded in December. As a result of a much larger shortfall this January compared with last year’s, the 12-month trailing current account deficit widened to USD 51.6 billion in January from USD 47.2 billion in December, the highest print since April 2014.
Robust domestic demand and soaring gold imports accounted for most of January’s weakness in the balance of trade. Good imports soared 38.6% in year-on-year terms in January (December: +22.1% year-on-year), with net gold imports amounting to an all-time high of USD 2.3 billion in January. Total imports for the month stood at USD 20.8 billion. Other than healthy domestic appetite for foreign goods, a higher oil bill also boosted imports.
Merchandise exports also performed well in the month, expanding 10.5% in January from growth of 5.4% in December. Nonetheless, as import growth outpaced that of exports, the trade deficit in goods widened to USD 7.6 billion in January from USD 3.1 billion in the same month of last year. The figure was also marginally above the USD 7.5 billion deficit recorded in December.
Meanwhile, the trade surplus in the services sector improved markedly from the previous year, rising to USD 919 million in January from USD 631 million in January 2017. The main contributor to this year’s figure was yet again the travel services industry, recording a net inflow of USD 882 million from the USD 695 million logged in the same month of the previous year.
The country was able to finance its current account deficit, with official reserves increasing by USD 4.4 billion in January on the back of strong portfolio inflows. Nonetheless, an expanding current account deficit and the country’s reliance on foreign inflows showcases Turkey’s exposure to shifts in global market sentiment, which could see the country’s financing sources quickly drying in the advent of unfavorable events.
Author: David Ampudia, Economist