Turkey: CAD widens with the increase in foreign trade deficit

In Turkey, the current account balance posted a deficit for the second time in a row in December as high energy costs kept the foreign trade deficit wide.

In Turkey, the current account balance posted a deficit for the second time in a row in December as high energy costs kept the foreign trade deficit wide. The current account deficit, which was announced as 3.84 billion dollars on a monthly basis, was lower than the market expectation of 4.2 billion dollars and our expectation of 4.3 billion dollars. In the monthly period, the current account balance increased compared to the 3.44 billion USD deficit in December last year. On a 12-month basis, the current account deficit was 14.8 billion dollars compared to the 35.5 billion dollars deficit in 2020. Thus, the current account deficit/GDP ratio, which was 5.1% in 2020, decreased to 2% in 2021 according to our GDP estimation.


When we look at the most determining factors in the current account; Net goods trade posted a $5 billion deficit as energy prices drove up the cost of imports. The energy bill has increased due to exchange rate movements and global commodity prices. While the net income from tourism was 1.3 billion dollars, the balance of services trade gave a surplus of 1.7 billion dollars. We observe that the good trend in tourism continues. The item here will contribute higher during the travel season.


While net inflows originating from direct investments on the financing side were 739 million dollars in December, it is seen that there was a net outflow of 2 billion dollars on the portfolio side. While net sales of stocks were 1 billion dollars, net sales of debt instruments were 226 million dollars. Official reserves decreased by $13.8 billion due to the historical depreciation of the lira against the dollar in December. The central bank had sold $7.3 billion for the lira in a tumultuous month in a series of direct interventions in foreign exchange markets. Net errors and omissions or capital movements of unknown origin showed a monthly inflow of $8.7 billion, with annual inflows of $10.5 billion for the full year.


On the current account balance side, we will see that the deficit widens again with the effect of the increase in the foreign trade deficit in January. We think that the increased energy bill compared to the previous year will have an increasing effect on import expenses and therefore may have an adverse effect on the current account balance. The good trend in tourism will have a balancing effect in terms of current transactions. Expectations regarding the course of the lira and the effects on investment, portfolio and reserve utilization will be decisive in terms of financing quality and need. The economy management aims to switch to the current account surplus in 2022. Central Bank Governor Mr. Şahap Kavcıoğlu also predicted a current account surplus in 2022 in his January Inflation Report presentation and MPC statements. We consider that we may not be able to go to the current account surplus due to the foreign trade deficit because of the risks we have mentioned on the import side.


In the perspective of monetary policy, the Central Bank determines a strategy to increase exports, increase the current account balance and support growth. Therefore, we do not expect an increase in interest rates in the near term. In the MPC, which will be held on February 17, we do not expect interest rates to change.

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