Turkey: Current account deficit deepens in line with forecasts

The current account deficit in Turkey remained for the 10th consecutive month as the trade balance was hit by the global rally in energy prices in August. The current account deficit, which was announced as $3.11 billion on a monthly basis, was realized in line with the market median expectation of $3.2 billion deficit. The current account balance had a surplus of 1.1 billion dollars in the same month of the previous year. While the deficit in the first eight months of this year widened to $39.7 billion, the 12-month total current account deficit widened from $36.7 billion in July to $40.9 billion in August. While the current account deficit excluding energy gave a surplus of 4 billion dollars in August (a surplus of 4.7 billion dollars in August 2021), the current account deficit excluding gold and energy gave a surplus of 6.3 billion dollars (a surplus of 4.9 billion dollars in August 2021).

The current account deficit appears to have been realized in line with expectations on a monthly and annual cumulative basis. In this outlook, the widening in the current account deficit was also affected by the increase in the foreign trade deficit. The deficit in goods trade was $9.7 billion. While the foreign trade deficit is extremely high, August data and leading September data show that the deterioration continues. The increasing trend of exports slows down as the months pass. Increasing recession pressures in the EU and in the world will cause a disruption in our exports, especially in the EU, which is our main market. The value of our export goods in foreign currency is also affected by the dollar due to the cost of inputs. The reflection of the depreciation in EURUSD parity means that our income decreases because we export in Euro and our expenses increase because we import in dollars. In the rest of 2022 and in 2023, we expect exports to continue to increase due to difficulties and imports to continue to increase due to rising energy prices.

The increase in tourism revenues has a positive contribution in terms of keeping the current account deficit at current levels for now. Tourism revenue was 5.1 billion dollars, while services gave a surplus of 7.2 billion dollars. According to the data of the Ministry of Culture and Tourism, foreign tourist arrivals increased by 58.3% year-on-year in August.

On the financing side, net inflows originating from direct investments were 573 million dollars in August, while on the portfolio side there was a net inflow of 812 million dollars. While net purchases of stocks were 761 million dollars, net sales of 6 million dollars were made in debt instruments. Net errors and omissions or capital movements of unknown origin totaled $28.3 billion in the January-August period, almost adding $3.96 billion to the previous month’s cumulative net errors-omissions entry. Official reserves increased by $10.8 billion.

We observe that the serious problem in financing continues. On the direct investment and portfolio side, there are very few entries throughout the year. Therefore, most of the general financing of the current account deficit comes from net errors and omissions. This situation is evaluated as negative in terms of the current account balance profile, and we think that it is not normal and sustainable.

Turkey’s C/A account, million USD, 12 months. Source: CBRT, Tera Yatirim

The central bank will hold its next rate-setting meeting on October 20 and will release this year’s final inflation report at the end of this month, one week after the MPC meeting. The Bank had reduced the benchmark interest rate by 200 basis points cumulatively in the last two months, citing the slowdown in economic activity. According to the medium-term program published in September, the foreign trade deficit, fueled by the rise in energy prices since Russia’s invasion of Ukraine began in February, is expected to reach $105 billion this year. The new economy program was based on the principle that there would be a current account surplus and that inflation would decrease accordingly. However, the conditions valid for this model to become functional have not been realized due to the deepening of the current account deficit. We expect the current account deficit to continue to increase in the coming months and reach the level of 55 billion dollars by the end of the year. This will cause the pressure on the foreign exchange and inflation side to continue.

Kaynak: Tera Yatırım-Enver Erkan
Hibya Haber Ajansı