Turkey’s 12-month rolling cumulative current account balance was not in deficit in June for the first time since November 2002, with a surplus of $538mn posted, the country’s central bank announced.

However, the data for the monthly current account showed a more-than-forecast June deficit of $548mn, down from $3.01bn a year ago. The market consensus was for a deficit of $265mn in the month, according to a Reuters survey.

Economic activity in Turkey fell hugely following the Turkish lira crisis last summer that sparked a recession. The currency crunch caused the price of imports to surge, leading to the marked reduction in the current account deficit. Investors will be worried at how the 12-month current account deficit was eliminated by a fall in imports rather than a rise in exports. Imports in the first half of the year dropped almost 19%, while exports rose just under 4%, the central bank’s data showed.

There were $12.4bn worth of outflows under the financial account in the 12-month period, with the remaining $11.9bn of the financial deficit left when the current account surplus is excluded financed via $7.6bn worth of unidentified inflows under the net errors and omissions item plus $4.3bn of reserves.

Seker Invest said it expected the 12-month rolling current account surplus to reach around $4bn in July and to continue rising until October. Serkan Gonencler of the Istanbul-based brokerage outlined the forecast scenario in a research note.

“Deficit widening again!”
Robin Brooks of the Institute of International Finance (IIF) said in comments posted on Twitter that the greater-than-expected June current account deficit had caught his eye. “Last summer I was more positive on Turkish Lira than Argentina's Peso, because I thought the BoP sudden stop and resulting credit crunch would quickly turn Turkey's trade deficit into surplus. But repeated credit expansions have prevented that. Trade deficit is widening again!” he wrote.

“Underlying dynamics for the Turkish Lira are deteriorating. Export growth is falling given the weak Euro zone. That increases the need for import compression to keep the current account deficit small. But another credit expansion in Q3 is boosting domestic demand and imports...,” he added in another tweet.

Turkey’s $750bn economy was running a current account deficit of almost $60bn as recently as May 2018. The country posted a substantial current account deficit over the decade-long economic expansion fuelled by cheap credit it saw under Recep Tayyip Erdogan and his Justice and Development Party (AKP). It imported far more products than it exported and very much financed the gap with hot capital inflows.

Inan Demir, emerging market economist at Nomura, was quoted by the Financial Times as saying: “These numbers suggest that this is very much a cyclical improvement in the external balance, and that if the economic cycle turns again in the direction of growth, then the current account balance will once again swing to deficit.”

Turkey's Balance of Payments
USD mn	H1/2018	H1/2019	y/y
CURRENT ACCOUNT	-31,049	-3,259	-90%
Exports	85,776	89,078	4%
Imports	119,467	97,172	-19%
Balance on Goods	-33,691	-8,094	-76%
Balance on Goods and Services	-25,123	2,759	-111%
Primary Income: Credit	2,975	3,206	8%
Primary Income: Debit	9,099	9,490	4%
FINANCIAL ACCOUNT	-13,655	-1,764	-87%
FDI: Net incurrence of liabilities	5,257	4,598	-13%
Portfolio Invesment: Net incurrence of liabilities	241	3,617	1401%
Equity Securities	-782	858	-210%
Debt Securities	1,023	2,759	170%
Loans	-3,954	7,557	-291%
NET ERRORS AND OMISSSIONS	9,603	-161	-102%
RESERVE ASSETS	-7,759	-1,638	-79%
source: tcmb