Turkey’s current account deficit (CAD) grew by 89 percent in February from a year ago, widening the 12-month rolling deficit to USD37.8 billion from USD 36.6 billion in January. From end of 2020 CAD/GDP ratio of 5.1 percent, the February CAD now accounts to 5.3 percent of GDP.
The deficit in February was USD 2.61 billion which is above the USD 2.45 billion expected.
The two-month current account deficit for 2021 is $4.4 billion which is above the $3.4 billion recorded same term last year. In the coming months, the interest rate increase and the devaluation of the TL are expected to slowdown domestic demand. Howevere the possibility of an immature rate cut due for JUne could reverse the trend.
As for the capital movements, the portfolio inflows during November-March will keep fleeing TUrkey following Agbal’s departure as the central bank governor. This escape, which we will get tangible in the March-April BoP data will also negatively affect Turkey’s GDP growth performance.
Strengthening demand on the EU side will reflect positively on Turkey’s exports, while the ongoing slowdown in gold imports compared to last year will ease current account deficit pressures. Inevitably, 2021 will be another lost year for the tourism sector.
All combined the current account deficit to GDP ratio can be expected to fall from 5.1% last year to around 4-4.5% by end 2021, which means that the pressures on TL will continue.
Here are the highlights from the February BoP:
– It is noteworthy that the foreign trade deficit remained almost horizontal with an increase of $0.1 billion, while tourism-related losses continued to have a negative impact on the current account deficit. The decrease in net gold imports for February 2021 from $1.2 billion last year to $0.9 billion is a relief for the performance of the foreign trade deficit. (Gold imports have fallen from $2.8 billion in the first two months of last year to $1.8 billion in January-February 2021.)
– On the services side, inflows decreased by $0.98 billion to $0.49 billion and net outflows from primary income balance increased by $0.39 billion to $1.2 billion, one of the factors that grew the current account deficit. Tourism net income under the services balance fell by $0.56 billion to $0.39 billion in February2021 from February2020.
– In the current account balance excluding gold and energy, a surplus of $2.4 billion was recorded versus $0.5 billion surplus in February last year.
– On the financing side, direct investments in February 2021 are limited to $0.7 billion. Portfolio investments are $0.3 billion. Add in the $0.7 billion that came in as other investments, and the capital coming in in February 2021 is $1.7 billion. In the first two months of 2021, direct investment inflows were $0.9 billion, while inflows in portfolio investments were $5.1 billion, concentrated mostly to January. Other investment outflows are $2.5 billion.
– In February alone, net error and ommissions were $1.9 billion, which has boosted central bank reserves by $0.9 billion. Two-month net error and ommissions inflows are $5.4 billion.
– As a result, inflow of financial accounts excluding bank reserves in the first two months is $6 billion. The amount from the Treasury’s eurobond sale abroad represents almost half of that inflow, at $3.5 billion. The inflow from the net errors and ommissions is $5.4 billion. Of the total two-month financing of $11.4 billion, $4.4 billion in two months was used to cover the current account deficit, while $4.5 billion of the remaining $6.9 billion went to CBRT reserves and the remaining $2.4 billion to bank reserves.