Turkey: Current account surplus reaches 10-month high in August
The external sector of Turkey recorded a USD 2.6 billion current account surplus in August (July: USD 1.1 billion surplus), which is up from the USD 2.1 billion surplus logged in the same month of the prior year, and marked the highest reading since October last year. While August’s print came in below market expectations of a USD 2.9 billion surplus, the annualized current account surplus in the 12 months up to August came in at USD 5.1 billion and this marked the largest surplus since current records began in the 1990s. Moreover, the 12-month moving sum of the current account swung from a USD 51.6 billion deficit in August 2018, and came in above the USD 4.5 billion surplus recorded in July 2019.
August’s improvement was driven by an ongoing narrowing of the merchandise trade deficit compared to a year prior as well as a widening of the services trade surplus. The narrowing of the merchandise trade deficit came chiefly on the back of lethargic domestic demand. This is despite a rise in imports in August of 4.9% year-on-year that mainly reflects a base effect as imports fell a whopping 22.1% in the same month last year due to the currency crisis—which, on the flipside, has made Turkish exports more price competitive and boosted export growth (August: +5.1% year-on-year). The lira weakness has also made tourism much cheaper and this is likely reflected in the continued widening of the services trade surplus.
On the financing front, there was a net outflow of USD 1.6 billion in August (July: USD -1.4 billion) that starkly contrasted the net outflow of USD14.9 billion in the same month of the prior year. This was mainly attributable to a net portfolio outflow as banks acquired assets in foreign countries and reduced equity liabilities at home. Banks as well as the government also lowered their loan liabilities. According to the research team at Goldman Sachs, the outflow of funds among banks hints at continued deleveraging. Meanwhile, official reserves rose by USD 254 million.