Turkey: Currency crisis triggers rebalancing

3 min
Manfred Stamer
Manfred Stamer Senior Economist for Emerging Europe and the Middle East

The current account posted a +USD2.6bn surplus in August which compares to a -USD0.9bn deficit a year ago. The first monthly surplus in almost three years reduced the 12-month rolling current account deficit to -USD51bn (down from a -USD58bn peak in May 2018) though this still accounts for about -7% of annual GDP. As we expect in our hard landing scenario for Turkey (see also our Insight Turkey), a rebalancing in the tradeable sector after the sharp TRY depreciation (-34% loss in value YTD) is underway. Imports of goods collapsed by -22% y/y and imports of services by -11% in August. Exports of goods fell by a much lower rate of -7% y/y and should, going forward, benefit from the more competi­tive currency. Exports of services even grew by +8% in August thanks to rising tourism as tourists enjoy now significantly more affordable holidays in Turkey. However, the other side of the coin is that portfolio investment recorded the seventh consecu­tive month of net outflows in August, at -USD1.8bn, taking the YTD net outflows to -USD2.2bn. And the Central Bank’s foreign exchange reserves dropped by
-USD8.1bn in August, followed by -USD4bn in September, now standing at USD66bn (-29% y/y) and covering less than three months of imports.