Turkey’s current account gap contracts 22% y/y in June, FX reserves down $7bn

Turkey’s current account gap contracts 22% y/y in June, FX reserves down $7bn
By bne IntelliNews August 12, 2018

Turkey’s current account deficit contracted by 22% y/y to $2.97bn in June, marking the first annual contraction since August 2017, the central bank announced on August 10.

The market was expecting a deficit of $3bn for the month, according to a Reuter’s poll of economists.

Across H1, the deficit rose, by 47% y/y to $31bn.

“Ironic, the current deficit improved with signs of rebalancing. Exports up, imports down, services surplus up on great tourism season. But the damage came on the capital account. Portfolio outflows of over $800m, disappointing other investment flows (rollover covers there), errors and omission inflows also dropped. And reflecting on all of that the cental bank blew USD7bn in FX reserves as the price really of policy failure. This [financial crisis in Turkey] is a totally self-made crisis. Policy error, after policy error,” Timothy Ash of Bluebay Asset Management said in an emailed comment.

The annual contraction in June's current account gap confirmed that the expected rebalancing is gathering pace just as the full-blown currency crisis is expanding into the real economy. The widening gap across the first four months of 2018 was a serious concern for those trying to get a grip on Turkey's overheating economy, which other data released on June 11 showed grew at the stellar rate of 7.4% in the first quarter of this year. The initial signs of re-balancing came in May.

The 12-month cumulative current account deficit also declined from a revised $58.2bn in May to $57.4bn in June but still compared very unfavourably with the $35.1bn seen in June 2017.

Turkey’s current account deficit widened by 42% y/y to $47.1bn in 2017, driven by rising gold imports and energy prices.

Turkey’s foreign trade deficit declined by 32% y/y to $6bn in July, preliminary data from the customs ministry showed on August 1.

In June, a contraction in Turkey’s foreign trade shortfall was recorded for the first time since June last year. It shrank by 9% y/y. The July data underlined an acceleration in the pace of the re-balancing seen in the Turkish economy.

According to the latest central bank survey, Turkey’s end-2018 current account deficit expectations rose to $54.8bn in June from $53.5bn in May.

On April 17, the International Monetary Fund (IMF) announced in its latest edition of the World Economic Outlook that it expected Turkey’s current account deficit to come in at 5.4% of GDP in 2018, slightly better than the 5.5% recorded in 2017.

Turkey has one of the worst current account deficits in the world and its economic health, consequently, is dangerously reliant on hot inflows of foreign external financing to enable growth. The political and economic outlook in the country is not secure enough to attract sufficient longer-term stable foreign investment capital.

 

 

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