Turkey Current Account July 2022

The current account posted a deficit of 4.0 billion USD in July, up from 3.5 billion USD in June (July 2021: a deficit of 0.3 billion USD). Meanwhile, in the twelve months to July, the current account posted a deficit of $36.6 billion, compared to the $32.9 billion deficit recorded in June, the largest in 17 months.

The growing current account deficit was driven by merchandise trade. The merchandise trade balance worsened from the previous month, posting a deficit of $9.3 billion in July (June 2022: deficit of $6.4 billion; July 2021: deficit of $3.1 billion). Merchandise exports jumped 13.2% y/y in July (June: +18.9% y/y). July results recorded the weakest growth since July 2021. Meanwhile, merchandise imports rose 42.6% compared to the same month last year in July (June: +39.8% YoY). This was driven in part by the nearly doubling of the annual energy import bill due to the war in Ukraine. More positively, the services trade surplus increased on the back of continued tourist flows, with arrivals jumping more than 52% year-on-year.

On the financial front, there was a net inflow of $3.0 billion (June 2022: net inflow of $2.4 billion; July 2021: net inflow of $3.7 billion) due to debt creation of non-resident inflows. This budget continued the influx of residents. The currency of Turkish banks’ deposits with their foreign counterparts rose by about 1.0 billion US dollars, and residents increased their foreign assets by 2.9 billion US dollars. Finally, official reserves increased by $4.4 billion.

The current account deficit is expected to rise this year due to the consequences of the conflict in Ukraine. The conflict has led to higher energy costs and the import bill for Turkey as a net importer of oil and gas. The fluctuation of the lira remains a risk.

Mehmet Marjan, chief economist for Turkey at ING added:

The current account deficit has been on a rapidly expanding trajectory since early this year […] The latest indications are that this trend will likely continue into August with an overall deterioration in foreign trade. […] On the financing side, we see an increasing dependence on unspecified flows and reserves while the global backdrop that has become less supportive in recent months is adding challenges due to higher external funding requirements.”

Clemens Graffi of Goldman Sachs was more upbeat about Turkey’s external financing needs:

We believe that the recent foreign inflows into Turkey greatly ease the external financing constraints on Turkish growth. Given the subsequent reduction in the need for policy tightening in the second half, we have raised our forecast for the 2022 current account deficit to $45.0 billion.”

Members of the FocusEconomics Consensus forecast committee expect Turkey to run a current account deficit of 4.5% of GDP in 2022. In 2023, the committee sees the current account deficit shrinking to 3.1% of GDP.

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