Turkey: Current account deficit narrows in March
At the close of the first quarter, Turkey recorded a current account deficit of USD 3.3 billion. The print beat market analysts’ expectations of a wider shortfall and was up from the USD 5.5 billion deficit recorded in March 2020. However, it was down from the USD 2.6 billion deficit logged in February 2021. Meanwhile, the 12-month rolling sum of the current account narrowed from a USD 38.3 billion deficit in February to a USD 36.2 billion shortfall in March, marking the best reading since October last year.
The annual improvement in the headline print came on the back of a smaller merchandise trade deficit, with goods exports jumping 40.2% year-on-year in March (February: +8.5% yoy), markedly outpacing the 22.5% increase in merchandise imports (February: +8.4% yoy). Goods exports likely benefited from the weaker lira as well as a pickup in global trade. Furthermore, a widening services trade surplus supported the headline reading. This came on the back of the first increase in tourist arrivals since February last year, although the rise was partly reflective of a supportive base effect.
On the financial front, there was a net outflow of USD 4.4 billion in March, down from the net outflow of USD 7.0 billion in the same month a year prior (February 2021: USD 1.7 billion net inflow). The outflow was driven by the government’s external debt repayments, non-residents reducing their equity assets, and Turkish banks increasing their currency and deposits within their foreign counterparts. On the other hand, non-resident bank deposits rose in the month. Lastly, official reserves decreased by USD 6.2 billion.
Reflecting on March’s reading, Muhammet Mercan, chief Turkey economist at ING, commented:
“Overall, the March data suggests the start of an improvement trend in the current account. This is supported by early indicators for April, driven by a fall in gold imports and an uptrend in exports despite strength in commodity prices. The capital account that saw significant outflows last year will likely face challenges in the period ahead—reflecting reviving weakness in portfolio flows. Real estate related inflows, government borrowing and the level of corporate rollovers should help ease pressures.”
Murat Unur and Clemens Grafe, analysts at Goldman Sachs, added:
“Going forward, we expect a current account deficit of 1.5% of GDP for 2021 as a whole, largely because we think that financing a larger amount is likely to be challenging under current conditions. The slowdown in loan growth is likely to lead to a slowdown in the pace of economic activity as well. Nevertheless, risks are for a larger deficit given the uncertainty around the tourism outlook and higher commodity prices—sizeable net errors and omissions related inflows have provided a significant amount of funding year-to-date.”