Turkey: Current account surplus widens in October
Turkey’s current account balance showed a surplus of USD 3.2 billion in October, nearly doubling from September’s USD 1.7 billion surplus (October 2020: USD 0.1 billion deficit). The print overshot market analysts’ expectations, and marked the third successive month of a positive balance. Meanwhile, on a 12-month rolling basis, the country’s current account deficit narrowed to USD 15.4 billion in October from USD 18.4 billion in September. This marked the smallest shortfall since June last year.
The annual improvement came on the back of a widening services trade surplus amid a continued recovery in the tourism sector. Tourist arrivals rose nearly 100% year-on-year in October, although this was partly due to a favorable base effect. In addition, the merchandise trade balance swung from a USD 1.3 billion deficit in October 2020 to a USD 0.1 billion surplus in October 2021. This was driven by the expansion in goods exports (October: +21.2% year-on-year) comfortably outpacing growth in merchandise imports (October: +12.0% year-on-year), which have likely been weighed on by continued pressure on the country’s currency.
On the financial front, there was a net outflow of USD 4.3 billion in October. This was in contrast to September’s USD 2.7 billion net inflow, and October 2020’s net inflow of USD 5.8 billion. The print was driven by an outflow of portfolio investment, as non-residents reduced their holdings of equity securities and government debt. Furthermore, net repayment of banks’ debt also supported the overall net outflow of funds. Lastly, official reserves rose by USD 1.5 billion in the month.
While Turkey’s external position has improved in recent months thanks to the easing of restrictions and the recovery in tourism, renewed currency volatility poses a significant downside risk to the country’s external position.
Commenting on the outlook, analysts at the EIU added:
“The outlook for capital inflows remains uncertain, given global financial conditions and investor concerns about Turkey’s economic management, which increases the risk of a balance-of-payments crisis. However, a balance-of-payments crisis is not our core forecast, as many banks will opt for short-term syndicated loans, which will allow them to roll over external debt.”