Turkey: Current account swings to first surplus in six months in May
July 11, 2019
Turkey posted its first current account surplus in six months in May, as the balance swung from a USD 1.3 billion deficit in April to a USD 151 million surplus. The result marked a stark contrast with a current account deficit of USD 6.2 billion in May 2018, however it was slightly below market analysts’ expectations. On a 12-month rolling basis, the current account deficit stood at USD 2.4 billion, a marked improvement from the USD 8.7 billion shortfall in April and the narrowest gap since February 2003; limp domestic demand due to a weak currency has been a key element in the recovery of external imbalances.
May’s improvement from a year earlier mainly came on the back of a noticeably smaller merchandise trade deficit; while imports continued to drop at a marked pace owing to feeble demand, exports growth spurred to an eight-month high in May owing to increased price competitiveness due to the depreciation of the exchange rate. The weaker currency also helped to boost tourism revenues, further supporting the swing in the current account balance. As of 9 July, the lira depreciated 7.7% against the U.S. dollar in year-to-date terms, and lost 17.4% of its value over the same day a year prior.
On the financing front, a net inflow of USD 1.3 billion was recorded; while the print swung from a net outflow of USD 5.1 billion in April, it marked the first net inflow since February this year and an improvement from the USD 900 million inflow recorded in May 2018. May’s net inflow was due to a drop in foreign currency and deposit assets of banks held abroad, while Turkish assets have become cheaper since the currency crisis last year and supported ongoing acquisitions of assets by foreigners. On the other hand, portfolio investments were reduced.
Meanwhile, the Central Bank’s foreign exchange reserves increased by USD 3.0 billion in May, contrasting the USD 2.8 billion drop in April and the USD 7.0 billion fall in May last year.
Author: Jan Lammersen, Economist