Turkey Current Account April 2022

The current account posted a USD 2.7 billion deficit in April, improving from the USD 5.8 billion deficit posted in March (April 2021: USD 1.5 billion deficit). Meanwhile, the 12-month trailing current account deficit came in at USD 25.7 billion in April (March: USD 24.5 billion deficit).

The merchandise trade balance improved from the previous month, recording a USD 4.4 billion shortfall in April (March 2022: USD 6.3 billion deficit). Merchandise exports shot up 26.5% year on year in April, following March’s 21.6% jump. Meanwhile, merchandise imports surged 37.6% over the same month last year in April (March: +34.1% yoy). This was driven by a greater energy import bill, as commodity prices skyrocketed due to the war in Ukraine; trade data excluding gold and energy showed a sizeable trade surplus. Meanwhile, the services trade surplus widened in April from March, driven by the ongoing recovery in the tourism sector: Foreign arrivals jumped over 225% year on year in the month, marking the strongest expansion in nine months.

Meanwhile, the financial account showed a net inflow of USD 1.4 billion (March 2022: USD 1.5 billion net outflow; April 2021: USD 1.4 billion net inflow), driven by debt-creating inflows from non-residents, which offset resident outflows to an extent. Lasty, official reserves rose by USD 3.2 billion in April, following a USD 4.5 billion decrease in March (April 2021: USD -1.2 billion).

The current account deficit is forecast to widen this year amid the fallout from the war in Ukraine. Higher energy prices have pushed up the import bill as Turkey is a net importer of oil and gas. The war is also likely to weigh on the tourism sector as less arrivals from Ukraine and Russia are expected. Russian tourists accounted for roughly a fifth of overall arrivals in 2021, but through April this year only roughly 1 in 20 tourists arrived from Russia. Furthermore, the lira’s volatility remains a downside risk.

Muhammet Mercan, chief Turkey economist at ING, commented:

“Despite i) the supportive impact of ongoing strength in tourism revenues and ii) signs of a slowdown in economic activity which will weaken core imports, the current account will likely remain under pressure as oil prices are expected to remain elevated and the Eurozone, as Turkey’s major trading partner, faces a grim growth outlook. On the financing side, a less supportive global backdrop should also add to the challenges, given high external financing requirements as well as a heavy reliance on financial flows rather than long-term finance like FDI, which is low relative to peer countries.”

FocusEconomics Consensus Forecast panelists expect Turkey to record a current account deficit of 3.6% of GDP in 2022. In 2023, the panel sees the current account deficit narrowing to 2.6% of GDP.