Turkey’s current deficit deepens with the deterioration in the trade balance

In August current account balance in Turkey, gave 4.6 billion USD deficit. While the monthly current account deficit was realized slightly above the market expectation of 4.4 billion USD, it appears to have expanded from the revised level of 1.94 billion USD in July.

On an annualized basis, on the current account balance side, as of August, there was an increase from 15.3 billion USD in July to 23.2 billion USD. In the current account balance, the deficit is growing as the trade balance is disturbed and the coronavirus-related tourism decline deepens.


The increase in current account deficit is occurring rapidly. While the 12-month current account deficit has reached 23.2 billion USD, the 8-month current account deficit has already reached 26.5 billion USD. The 8-month imports did not decline much from the same period of the previous year; from 129.5 billion USD to 127.2 billion USD in, but the decline in exports was faster. Foreign trade data for August indicated that the deficit increased by 168%, with imports rising and exports falling. The leading data of the Ministry of Commerce showed that the foreign trade deficit increased by 193% last year in September. In the period of January - August 2020, 101.6 billion USD was exported, while the 8-month export amount was 118.9 billion USD in the same period of the previous year. In this period, the sharp decline in service revenues from 41.3 billion USD to 21.7 billion USD on an 8-month basis mostly due to tourism was one of the main factors in the deterioration in the general view of the current account balance. Increasing trade deficit and weak service revenues cause the current account deficit to increase.


While the net inflows from direct investments on the financing side were 374 million USD in August, it is seen that there was a net outflow of 1.97 billion USD on the portfolio side. While net sales in stocks were 1.01 billion USD, net sales of 502 million USD were made in debt instruments. Official reserves decreased by USD 7.6 billion, as state banks sold USD to support TRY. It seems that the deterioration on the financing side continues. The intense demand for foreign currency and the financial market instability that it creates, largely explain the deficit stemming from the financial account. Current conditions are also unfavorable in terms of reserves, and current account deficit financing, which cannot be achieved through investment, brings with it intensive use of reserves. As a matter of fact, there was a very high reserve usage alone in August. While the current account balance in January - August 2020 period had a deficit of 26.5 billion USD, it is observed that the net error and omissions indicated a net outflow of 8 billion USD.


Although good economic activity data on a global basis provide a slightly better picture in terms of exports in the coming months, the high course continues in a year with low growth on the import side. In this context, the foreign trade deficit is in a period of higher increase compared to the previous year. On the import side, we will look at the impact of tightening and normalization steps taken in the country to restrain domestic demand. Weakness due to service revenues will continue. We expect the current account deficit to continue its high trend in September, with the effect of the deterioration in trade balance and tourism revenues compared to last year. As the 8-month deficit is 26.5 billion USD and the annualized current account deficit is 23.2 billion USD, it is almost certain that the annual current account deficit will realize above the 30 billion USD band.


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