Current Account in Turkey

Turkey - Current Account

Current account surplus widens in September

Turkey’s current account balance showed a surplus of USD 1.7 billion in September, marking the second consecutive surplus and more than doubling from August’s USD 0.8 billion surplus (September 2020: USD 2.3 billion deficit). The print also met market analysts’ expectations. Moreover, in the 12 months up to September, the current account deficit narrowed to USD 18.4 billion from USD 22.4 billion in August.

The annual improvement was driven by a wider services trade surplus and a narrowing goods trade deficit. On the services front, the recovery in the tourism sector drove the improvement. Tourist arrivals jumped nearly 60% in September, and the number of people visiting the country in the month was down only roughly 33% compared to 2019. On the merchandise trade front, the combination of firming external demand and improved competitiveness due to a weakened currency saw another month of solid export growth (September: +30.7% year-on-year; August: +54.3% yoy). Meanwhile, imports expanded at a softer pace of 11.0% in September (August: +23.1% yoy).

Turning to the financial account, there was a net inflow of USD 2.2 billion in September. The reading is down from August’s USD 9.8 billion inflow, but contrasts the USD 2.0 billion net outflow recorded in September 2020. The print was driven by a reduction in currency and deposits of Turkish banks within their foreign counterparts, and strong portfolio investment and direct investment. Lastly, official reserves rose by USD 5.6 billion in the month.

Turkey’s external position has improved recently thanks to the easing of restrictions globally, which has buoyed the tourism sector and goods exports. Moreover, the cheaper lira has greatly improved the competitiveness of Turkish goods. However, the country is still forecast to run a current account deficit next year and beyond.

Commenting on the outlook, analysts at the EIU added:

“Stronger than expected tourism revenue is favourable for the current-account deficit in 2021, which could remain below our forecast of 3.0% of GDP. In 2022 the continuing improvement in tourism revenue could be offset by a larger trade deficit. We forecast a current-account deficit of 2.9% of GDP next year. The recent loosening of monetary policy and the renewed weakness of the Turkish lira pose both upside and downside risks to this forecast.”

FocusEconomics Consensus Forecast panelists expect Turkey to record a current account deficit of 2.5% of GDP in 2022. In 2023, the panel sees the current account deficit widening to 2.6% of GDP.