Middle East war drives record capital outflows from Turkey

In March, Turkey's current account posted another large deficit at US$9.7bn, in line with the market consensus and our call. Following the data, the 12-month rolling current account deficit maintained the uptrend and reached US$39.7bn, or approximately 2.6% of GDP, from US$35.0bn a month ago.

A closer look at the monthly figures shows that the deficit widened by roughly US$4.8bn compared to the same month of 2025, primarily due to a higher trade gap which deteriorated from US$-4.9bn to US$-9.5bn, stemming from the turn of the core trade surplus in 2025 to a deficit and rising gold imports.

Despite the US‑Iran war pushing energy prices higher, the energy trade balance slightly improved compared with last year.

In the first quarter, however, the trade deficit widened due to the same factors seen in March, alongside a small drop in services income and bigger gaps in primary and secondary income. Together, these led to a deterioration in the current account of close to $10bn.

On the capital account side, the war in the Middle East weighed markedly with US$26.8bn of outflows (the largest ever). With additional outflows from net errors and omissions of US$7.0bn, and considering the current account deficit, official reserves dropped by a record US$43.4bn.

Further analysis reveals that resident activity led to outflows totalling US$13.7bn, primarily from the acquisition of portfolio assets and growing foreign deposits of local banks abroad. Non-residents also reduced their Turkey exposure by lowering their portfolio investments by US$11.4bn and deposits held at local banks by US$6.9bn. Growing trade credits by US$1.7bn and additional net borrowing of US$2.6bn partially offset the outflows.

In the breakdown of net borrowing, both banks and corporates secured long-term financing, exceeding their short-term debt repayments. This translates into long-term debt rollover ratios at 237% for corporations and 138% for banks on a monthly basis, compared to 214% and 151%, respectively, on a 12-month rolling basis.

In the first quarter, resident outflows rose to US$12.2bn from US$9.5bn a year ago. Foreign inflows, on the other hand, recorded a drop, coming in at US$10.1bn, compared to US$14.3bn in 2025. As a result, the capital account has moved into negative territory with US$2.2bn, compared to US$+4.8bn.

In addition, outflows via net errors and omissions remained elevated, totalling US$-16.2 bn vs US$-2.3 bn in 2025. Taken together with the widening current account deficit, which grew from US$-14.1bn to US$-23.7bn, official reserves were depleted by US$42.1bn vs a US$11.6bn fall recorded previously.