The current account (CA) deficit narrowed 54.9% y/y to USD 3.4bn in May, lower than the market consensus of USD 4.08bn, as the country’s foreign trade deficit shrank 34.5% y/y to USD 5.26bn in the month, data from the Central Bank showed on Friday. The Turkish economy ran a current account deficit of USD 19.84bn in January-May, down from the deficit of USD 32.3bn a year ago.

Turkey’s CA deficit has been declining steadily since the beginning of the year; it fell 14% y/y in January, 35% y/y in February, 42% y/y in March and dropped 41% y/y in April.

Exports rose 3.8% y/y to USD 14.9bn but imports fell at a higher rate of 9.9% y/y to USD 20.25bn in the month. The pace of export growth slowed in May from 8% y/y in April and 13% y/y in March. Even though Turkey seems to have benefited from the recovery in Europe, the country’s largest export market, the ongoing turmoil in Iraq is having an impact. Exports to Iraq dropped 21% y/y in June, according to data from the Turkish Exporters’ Assembly (TIM).

On the financing side, FDI inflows into the country amounted to USD 577mn, financing 16.8% of the CA deficit in the month while tourism revenues increased to USD 2.28bn in May from USD 1.4bn in April, also rising 1.4% y/y. The Central Bank reported USD 5.7bn worth of FDI inflows in the first five months of the year, higher than USD 4.55bn of FDI inflows a year ago. Tourism revenues amounted to USD 6.46bn in January-May, up from USD 6.36bn in the same period of 2013. Portfolio inflows rose 55.5% y/y to USD 1.4bn in May but fell 67% m/m. In the first five months of the year, portfolio inflows amounted to USD 3.1bn, representing an 83% y/y decline.

There was an inflow of USD 624mn into the Turkish equities market in May, up from the previous month’s USD 579mn. Inflows into Turkish government debt securities amounted to USD 336mn in May, down from USD 467mn in the previous month. Non-residents realised net sales of USD 3.07bn in five months in government debt securities, in contrast to net purchases of USD 7.3bn a year ago, the Central Bank said.

Banks borrowed USD 895mn on net basis in May through bond issues in international capital markets, bringing the net borrowings in the five-month period to USD 3.09bn. The Central Bank also reported an inflow of USD 984mn through net error and omission in May. Inflows through net error and omission amounted to USD 6.71bn in the first five months of the year against the outflow of USD 2.86bn in the same period of 2013.