Turkey: Current account surplus widens in September
November 12, 2019
The Turkish external sector recorded an above-expectations current account surplus of USD 2.5 billion, which was slightly down from August’s USD 2.7 billion surplus, but above the USD 1.9 billion surplus recorded in September last year. Moreover, on a 12-month rolling basis, the current account surplus rose to a record high of USD 5.9 billion and swung from the USD 45.3 billion deficit recorded in the same month a year prior (August 2019: USD +5.3 billion).
September’s result reflected a narrowing of the merchandise trade deficit and a widening of the services trade surplus. The merchandise trade shortfall narrowing is chiefly due to the aftereffects of last year’s currency crisis, which has dampened domestic demand and led to a significant cooling in import growth although imports returned to growth in August and September. Meanwhile, exports have benefited from increased price competitiveness due to the cheap lira. The latter has also helped the tourism sector, as reflected by a further widening of the services trade balance on the back of increased services exports. Muhammet Mercan, chief economist at ING Turkey, noted that tourism revenues came “close to the all-time high realized in 2014 [partly] on the back of […] increased price attractiveness in the aftermath of sharp depreciation in the Turkish lira last year.”
On the financing front, there was a net outflow of USD 680 million in September (August: USD -1.6 billion), which was a marked improvement from the net outflow of USD 5.0 billion in the same month a year prior. This was mainly due to Turks acquiring foreign assets via deposits at local banks, while banks also increased their holdings of foreign coinages. Foreign inflows were less than the foreign assets acquired by residents; however, they were driven by foreign direct investment inflows; trade credits; and increasing deposit holdings of foreigners at Turkish banks. Meanwhile, official reserves rose slightly by USD 29 million.
Mercan, looking ahead, noted that “September data shows a continued correction in external imbalances though we will likely witness a gradual reversal in the period ahead given an ongoing recovery in the credits with the CBT’s macro prudential move incentivizing lending by linking required reserve ratios and renumerations to credit growth as well as the ongoing rate cut cycle.”Analysts at Goldman Sachs echoed that sentiment and stated that they “expect the current account to be roughly balanced this year and move into a deficit as imports pick up in tandem with domestic demand next year as authorities prioritise growth going forward.”
Author: Jan Lammersen, Economist